China’s central bank has set the yuan’s daily reference rate against the US dollar at the strongest level in more than a year, with analysts expecting room for appreciation should a December rate cut by the US Federal Reserve weaken the dollar.
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The People’s Bank of China set the yuan’s midpoint rate, also known as the daily fixing rate, at 7.0796 to the US dollar on Wednesday – the strongest showing since October 2024.
The decision followed a 0.34 per cent rally in the offshore yuan on Tuesday, when it briefly touched 7.0794, the strongest level since late last year, according to financial data provider Wind.
By midday on Wednesday, the offshore yuan further strengthened to 7.078.
“The renminbi’s movement has been quite idiosyncratic in recent days,” said Xu Tianchen, senior economist with the Economist Intelligence Unit, adding that the Chinese currency has appreciated against a strengthening US dollar and far outperformed the euro and the Japanese yen.
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“In the absence of tangible improvements in China’s macro fundamentals, I tend to see it as a recognition of its geopolitical power,” Xu said. “It’s possible to see a mild but steady appreciation, especially if a December Fed rate cut brings down the US dollar.”
The market is now closely watching the Federal Open Market Committee, which is scheduled to meet from December 9-10, following two quarter-percentage-point cuts in September and October.