China Strengthens Yuan Amidst Weakening Dollar

China has recently fixed its yuan at its strongest level since May 2023, positioning itself against a weakening U.S. dollar. The People s Bank of China PBOC set the exchange rate at 6.9843 yuan per dollar, below the 7 yuan per dollar benchmark which is crucial for its monetary policy.
This move comes as the dollar index DXY has dropped 10 over the past year. He Wei, an economist at Gavekal Dragonomics, noted that
the PBOC seems happy to permit more appreciation against the dollar, as long as the dollar s weakness against other currencies means that the renminbi s competitiveness is little affected.
Additionally, rumors of U.S. Treasury intervention to support the yen have impacted global forex markets. Takayuki Kobayashi from Japan s Liberal Democratic Party warned that
using reserves set aside for currency intervention would require selling U.S. Treasuries. That could affect markets.
However, Wei cautioned that the PBOC will be careful about further yuan strengthening. He stated,
Given China s economic growth is still highly dependent on exports, the PBOC may not yet be willing to risk a more significant appreciation of the currency.