China's Yuan edges higher as exporters' dollar sales offset Fed rate hike bets

China's yuan edged higher against the US dollar on Friday, supported by seasonal foreign exchange conversions by domestic companies, which helped offset broad dollar strength driven by growing expectations of a Federal Reserve interest rate hike in December, Reuters reported.

The onshore yuan rose 0.05% to 6.6711 per dollar as of 0345 GMT, while its offshore counterpart traded at 6.6719. The gains came even as the dollar hovered near a 19-month high and US Treasury yields climbed following comments by US President Donald Trump that Washington did not need a deal with Iran, according to Reuters.

Read more: Jensen Huang forfeits $108 million in unvested Nvidia equity


The remarks prompted some investors to consider the possibility of a larger 50-basis-point interest rate increase by the Federal Reserve next month, adding to support for the US currency, Reuters reported.

However, the dollar's strength was partly offset by increased selling from Chinese corporate clients. Currency traders told Reuters that companies were taking advantage of the firmer dollar to convert foreign exchange earnings into yuan as they approached the year-end.

Chinese exporters typically increase foreign currency conversions towards the end of the year and ahead of the Lunar New Year. The seasonal trend is driven by accounting and administrative requirements, along with the need to generate cash for employee bonuses and holiday-related expenses. Such conversions generally provide support to the yuan during December and January, Reuters reported.

Read more: Japan's Nikkei set for biggest weekly gain in five months as AI optimism lifts sentiment

Exporters continued to sell dollars whenever the US currency strengthened against the yuan, creating favourable conditions for further appreciation of the Chinese currency, ING Greater China Chief Economist Lynn Song said, according to Reuters.

Song also pointed to the substantial foreign currency holdings accumulated overseas in recent years and the expected inflow of export earnings. With China's trade surplus projected to reach a record high in 2026 and remain strong in 2027, the outlook for further yuan appreciation appears supportive, he said.

Meanwhile, the People's Bank of China (PBOC) set the yuan's midpoint rate at 6.7152 per dollar before the market opened on Friday. The fixing was 396 pips weaker than the Reuters estimate of 6.6756.

China allows the onshore yuan to trade within a 2% band on either side of the central bank's daily midpoint fixing.

Separately, the CFETS yuan basket index, which measures the currency's trade-weighted value against a basket of currencies, climbed to a 4-1/2-year high of 104.43 based on Friday's official midpoint, according to Reuters calculations using official data. The index has gained 6.6% so far this year.

Currency traders were also closely monitoring the Japanese yen, which remained near the psychologically important 160-per-dollar level. Any intervention by Japanese authorities to support the currency could have wider implications for global foreign exchange markets, Reuters reported.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)