Chinese Yuan Approaches Three-Year High as Beijing’s Controls Face Market Pressure

The Chinese yuan climbed close to its strongest closing level in nearly three years against the US dollar on Thursday, defying warnings from the People's Bank of China aimed at curbing rapid currency appreciation.

The move came amid persistent seasonal demand related to trade settlements, which has supported the yuan’s sustained upward momentum.

The onshore yuan ended the session at 6.8397 per dollar, its strongest close since March 23, 2023. In offshore trading, the currency briefly traded below 6.83 per dollar, also nearing its highest level in three years.

The yuan rose 0.9% against the US dollar this week, marking its 13th consecutive week of gains.

The rally has been supported by broad dollar weakness, seasonal demand from exporters converting foreign earnings into local currency, and relatively strong performance in the domestic equity market.

Analysts at GF Securities said the current export settlement wave may represent more than a short-term fluctuation.

The so-called “sell when strong” behaviour is gradually becoming a dominant strategy among exporting firms, referring to the tendency of companies to convert dollar revenues into yuan as the currency strengthens.

Market observers believe the yuan is unlikely to follow a one-way appreciation path this year, as currency stability remains a core objective of Chinese monetary policy.

Demand for settlement conversions is also expected to soften after the Lunar New Year holiday period in China.

Ahead of market opening, the central bank set the daily midpoint fixing at 6.9228 per dollar, the strongest level since May, 2023. The fixing was 623 pips weaker than market expectations, the largest such divergence on record.

China allows the yuan to trade within a 2% band above or below the daily fixing rate, reflecting the authorities’ managed floating exchange rate framework.

Daily policy signals from the Chinese central bank indicate a cautious tightening bias toward the yuan, allowing gradual appreciation while trying to contain volatility.

The U.S. dollar index, measuring the greenback against six major currencies, remained stable at 97.52, as uncertainty persists over how the administration of Donald Trump will respond to the U.S. Supreme Court ruling on February 20 that struck down part of previously imposed emergency tariffs.