China's central bank signals a slowdown in yuan appreciation
MacroDigital Finance
China's central bank has signaled it will slow the yuan's appreciation after the Chinese currency hit its strongest level in more than three years. It set the daily reference rate at 6.7808 yuan per dollar, which was 598 pips weaker than the average forecast by analysts and traders in a Bloomberg survey, the widest gap since February. The move reflects that the PBOC wants to curb overly rapid appreciation by using the daily fixing mechanism as a signaling tool to the market. The offshore yuan strengthened to its highest level since February 2023 amid pressure on the US dollar, after investors scaled back expectations that the Fed would raise interest rates further and the US Treasury announced plans to increase the size of long-term government bond buybacks. Wee Khoon Chong, senior Asia-Pacific market strategist at BNY in Hong Kong, said he remains positive on the yuan over the medium term but expects the pace of appreciation to slow, noting that China's slowing economy, continued portfolio outflows, and rising demand for currency hedging are becoming greater headwinds for the yuan. However, China's large current account surplus remains a key fundamental factor supporting the yuan over the medium term.
