Key facts
- China's yuan strengthened to a more than 3-1/2-year high against the US dollar on Monday.
- The People's Bank of China set its daily midpoint rate at 6.7487 per dollar, the strongest since Feb 3, 2023.
- US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng met on Sunday to lay groundwork for a Trump-Xi summit.
- The two sides are expected to discuss AI, trade relations, supply chains and Middle East tensions.
- Analysts expect no major policy breakthrough at the upcoming summit.
China's yuan strengthened to a more than 3-1/2-year high against the US dollar on Monday as the central bank softened its curb on currency appreciation ahead of a summit between US President Donald Trump and Chinese President Xi Jinping.
US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng concluded talks in New York on Sunday, laying the groundwork for the leaders' meeting later in the week. The two sides are expected to discuss AI, trade relations, supply chains, and Middle East tensions, though analysts anticipate no major policy breakthroughs.
The yuan reached a high of 6.6957 per dollar in early trade, its strongest level since January 16, 2023. The offshore yuan traded at 6.6946 yuan per dollar, up about 0.03% in Asian trade. Prior to the market open, the People's Bank of China set its daily midpoint rate at 6.7487 per dollar, the strongest since February 3, 2023, but 536 pips weaker than a Reuters estimate.
For nearly a year, the central bank had set its daily official yuan guidance at levels weaker than market expectations, a move interpreted as an attempt to slow the currency's appreciation. However, the official midpoint has strengthened at a faster pace this month, narrowing its gap with market expectations, suggesting the PBOC has eased its resistance to yuan gains. Analysts at Goldman Sachs noted this fixing strength in the run-up to the summit aligns with recent history, creating greater room for offshore spot to strengthen further.
Broader currency markets were largely muted as investors considered the global interest-rate outlook. The dollar index, tracking the US currency against six major peers, was steady at 100.23 after gaining more than 1% last week following a hawkish hike from the Federal Reserve. OCBC advised caution in interpreting the PBOC move as the start of a sustained yuan appreciation cycle, citing the wide US-China yield differential and soft domestic fundamentals.