China yuan hovers near 3-1/2-year peak ahead of US inflation data

SHANGHAI – China's yuan neared a 3-1/2-year high against the US dollar on Tuesday, as investors awaited US economic data and the Federal Reserve's monetary policy outlook to gauge the currency's direction. The upcoming US inflation data could provide insights into how the Iran conflict has contributed to price pressures, potentially influencing the Fed's assessment following last week's weak employment report.

The yuan traded near a multi-year high on Tuesday without new catalysts, strengthening 0.02% to 6.7447 per dollar by 0258 GMT, close to the previous day's level of 6.7429, its strongest since February 2023.

The People's Bank of China (PBOC) initially set the midpoint rate at 6.7900 per dollar, which was 403 pips weaker than a Reuters' estimate of 6.7497. The spot yuan is allowed to trade within 2% of the fixed midpoint rate each day. Analyst Christopher Wong from OCBC noted that while there is room for yuan strength due to exporter conversions and a weaker US dollar, policymakers are expected to keep a measured pace.

The PBOC has been setting weaker-than-expected midpoint fixings since November 2025, aiming to prevent excessive yuan gains and maintain market stability. The offshore yuan last traded at 6.7456 yuan per dollar, up about 0.01% in Asian trade. Currency traders closely monitored the Japanese yen, which had shed about half its recent gains following joint intervention efforts by Japan and the United States, for possible official support. A stronger yen could also bolster the yuan.