Global Market: Yuan strengthens as dollar retreats; China pushes back against undervaluation claims

The Chinese yuan strengthened against the US dollar on Friday as the greenback retreated from an 18-month high, while Beijing defended its exchange-rate policy amid trade negotiations with the European Union, according to Reuters.

The onshore yuan opened at 6.7000 per dollar and was last trading at 6.6987 as of 0221 GMT, up 46 pips from the previous session's close. The offshore yuan rose around 0.07% to 6.6986 per dollar.

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China's central bank on Thursday rejected foreign criticism that the yuan was undervalued, saying the country had never pursued competitive currency depreciation. The remarks came as European Union trade officials began two days of talks with Chinese counterparts in Beijing.

The negotiations follow months of discussions over the EU's goods trade deficit with China, which exceeds 1 billion euros ($1.12 billion) a day, as well as Beijing's restrictions on exports of rare earths and other critical minerals. European policymakers have called for a stronger yuan to help address China's growing trade surplus and export dominance.

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According to Reuters, analysts said Beijing's intervention appeared aimed at shaping the international debate ahead of potential demands for currency adjustments. China is seeking to shift the focus towards structural factors driving global trade imbalances rather than allegations of yuan undervaluation.

The yuan has gained 4.4% against the dollar this year and nearly 9% since late 2024, supported by strong exports and policies aimed at attracting foreign capital. Analysts expect the currency to remain broadly stable, with a gradual appreciation bias, although Chinese authorities are likely to limit excessive volatility.

Before Friday's market opening, the People's Bank of China set the yuan's daily midpoint at 6.7330 per dollar, its strongest fixing since February 2, 2023. The midpoint was 357 pips weaker than a Reuters estimate. The onshore yuan is permitted to trade within a 2% range on either side of the daily fixing.

The dollar weakened on Friday as a rise in euro zone bond yields stalled, while expectations for the US Federal Reserve's interest-rate trajectory remained largely unchanged. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.088% to 102.03.

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