China Sets Yuan Below 7 against Dollar for 1st Time since 2023

China’s central bank set the yuan’s daily reference rate below the key threshold of 7 per dollar for the first time in more than two years, signaling a renewed willingness by policymakers to support the currency as they seek to ease trade tensions and bolster investor confidence.

The People’s Bank of China (PBOC) fixed the yuan at 6.9929 per dollar on Friday, stronger than Thursday’s 7.0019 level. It marked the first time the official midpoint has fallen below 7 since May 2023, a level long viewed by markets as a symbolic line Beijing was reluctant to cross.

A stronger yuan could help reduce frictions with major trading partners while enhancing the appeal of Chinese assets at a time when authorities are trying to revive capital inflows and stabilize financial markets.

The fixing move follows a steady pattern of gradual support for the currency. Chinese authorities have raised the reference rate in seven of the past eight months. The midpoint sets a daily trading band of plus or minus 2% for the managed currency.

“This fixing sends a strong signal that policymakers are still comfortable with further yuan appreciation,” said Khoon Goh, head of Asia research at ANZ. “They appear willing to absorb additional gains in the currency, particularly in the context of a weaker U.S. dollar.”

Goh added that seasonal factors ahead of the Lunar New Year could push the dollar-yuan exchange rate toward the 6.9 level in the coming weeks.

The yuan has already shown notable strength in recent months. In December, it climbed above 7 per dollar in both onshore and offshore trading, and it has gained about 1% over the past month, outperforming most Asian peers.

Supportive fundamentals are also in play. China’s record trade surplus of $1.2 trillion, signs of capital repatriation, and improving sentiment toward domestic equities all point to potential further upside for the currency.

Friday’s fixing compared with a Bloomberg survey median estimate of 6.9503, suggesting the central bank is still managing the pace of appreciation rather than allowing a sharp move higher. Following the announcement, the yuan strengthened about 0.1% in both onshore and offshore markets.

Any gap between the actual fixing and market expectations is typically interpreted as an indication of how much support, or restraint, the PBOC is applying to the currency on a given day.

Despite allowing the yuan to strengthen, the central bank has continued to temper its rise. In recent months, it has frequently set fixings weaker than market forecasts, while state-owned banks have reportedly purchased dollars to curb excessive gains.