China yuan hits 3-1/2-year high as yen strength weighs on dollar

SHANGHAI: China's yuan reached a fresh 3-1/2-year high against the dollar on Thursday, supported by a more robust central bank fixing and ongoing dollar weakness due to increased gains in the Japanese yen. The yen maintained its strength following an unexpected surge in the previous session, placing downward pressure on the dollar in anticipation of a key US jobs report.

The People's Bank of China set the midpoint rate at 6.7807 per dollar before market opening, marking the highest level since February 8, 2023, but 640 pips below a Reuters estimate of 6.7167. Traders are allowed to trade the spot yuan within a 2% range either side of the fixed midpoint daily. Since November 2025, the central bank has persistently set the yuan midpoint lower than market predictions, aiming to stabilize the currency and prevent rapid appreciation.

In recent months, the onshore yuan has surged to a high of 6.7180 per dollar, the strongest level since February 2, 2023, before fluctuating at 6.7183 as of 0328 GMT. The offshore yuan traded at 6.7177 per dollar. A trader at a Chinese bank explained that the yuan's strength stemmed from the Japanese yen's rebound, and investors will soon focus on the upcoming US nonfarm payrolls data on Friday to gauge the Federal Reserve's policy direction.

Currently, markets anticipate a 61% probability of a Fed rate hike in September, which could impact major currencies, including the Chinese yuan, which has climbed over 4% against the dollar this year and is now one of the top-performing Asian currencies. Goldman Sachs economists anticipate that China's policymakers will continue to favor gradual CNY appreciation against the US dollar (3-5%/year) as the most balanced approach to achieving growth in advanced industries, bolstering self-sufficiency in vital technologies and supply chains, and accelerating the renminbi's internationalization.