On Monday, China’s yuan soared to a 14-month high against the US dollar, boosted by broad weakness in the greenback and increased seasonal corporate demand. Despite concerns about China’s economic slowdown and a weaker-than-expected official currency fix, the yuan continued to rise, hitting its strongest point since October 2024.
The onshore yuan strengthened by 0.05%, reaching 7.0508 per dollar by 0323 GMT, while its offshore counterpart climbed by 0.08% to 7.0487 per dollar. A large part of the yuan’s recent gains can be attributed to higher demand from Chinese exporters, who typically convert more foreign exchange receipts at the end of the year to meet various payments and administrative requirements.
Analysts at Barclays expect the yuan to hover around the 7.05 mark against the dollar by the end of the year, but they don’t foresee the currency breaking significantly beyond this level. “Exports remain a critical driver for China’s economy, so we don’t expect the People’s Bank of China (PBOC) to allow the yuan to appreciate too quickly,” the analysts said.
Ahead of market opening, the PBOC set the yuan’s official midpoint at 7.0656 per dollar, weaker than the market’s forecast of 7.0569. This move came after three days of yuan gains and is seen as an attempt by the central bank to slow the currency’s upward momentum. As Christopher Wong, an FX strategist at OCBC, explained, “Rapid appreciation could lead to a rush of exporters converting their USD holdings, which could create volatility or even an uncontrollable surge in the yuan.”
China’s economic data is also showing signs of strain. November saw further slowdowns in factory output and retail sales, mainly due to weaker domestic demand, putting pressure on policymakers to rebalance the economy. New bank loans also fell short of expectations, especially with a sharp decline in household borrowing amid the ongoing property downturn.
Globally, the US dollar is experiencing a period of weakness, with markets now focusing on future interest rate expectations in major economies. As 2025 approaches, investors are closely monitoring these shifts, which could have significant impacts on global trade and currency markets.
While the yuan’s recent rise is noteworthy, its future direction depends on a delicate balance of economic forces and policy interventions from China’s central bank.