Global Market: China’s yuan hits four-year high against dollar after Fed holds rates

China’s yuan rose to a four-year high against the dollar and its major trading partners on Thursday, supported by a steady strengthening bias from the central bank after the US Federal Reserve kept interest rates unchanged, according to a report by Reuters.

The onshore yuan strengthened to 6.6620 per dollar during the session, its strongest level since June 7, 2022, before trading at 6.6621 as of 0235 GMT. The currency has gained around 5% against the dollar so far this year.

The offshore yuan traded at 6.6601 per dollar, up about 0.03% in Asian trading.


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The gains came after the Federal Reserve held interest rates steady, as expected, delaying any change in borrowing costs while awaiting further inflation data. The decision followed concerns that inflation remained elevated, with attention turning to upcoming US midterm elections.

Before the market opened, the People's Bank of China (PBOC) set the yuan's daily midpoint at 6.7147 per dollar, its strongest fixing since February 2, 2023. The spot yuan is permitted to trade within a 2% band on either side of the daily midpoint.

However, Thursday's midpoint was 551 pips weaker than the Reuters estimate of 6.6596, marking the largest deviation on the weaker side since September 15. The gap suggested that Chinese authorities were continuing to manage the pace of the currency's appreciation even as market forces pushed it higher.

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According to Reuters, traders and analysts said the PBOC has gradually strengthened its daily yuan guidance this year, but has consistently fixed the midpoint at weaker levels than market expectations, indicating a preference for an orderly appreciation rather than a rapid rise.

Maybank analysts said in a note that the central bank was allowing the yuan's broader direction of appreciation to continue while limiting the speed of the dollar's decline against the Chinese currency.

The yuan's strength has also extended beyond its performance against the dollar. Based on Thursday's midpoint, the yuan's trade-weighted value against its major trading partners, measured by the CFETS currency basket index, rose to 103.75, its highest level since July 15, 2022, according to Reuters calculations based on official data.

The currency has appreciated about 5.9% against the basket so far this year, reflecting broader gains in its international value.

Currency traders are now turning their attention to the European Central Bank's policy decision due later on Thursday. The ECB is widely expected to leave interest rates unchanged, with investors watching for signals on the outlook for monetary policy in the euro zone.

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