Yuan holds near 3-1/2-year high as investors await US inflation data

China’s yuan displayed a near three-and-a-half-year peak against the dollar on Thursday, as investors eagerly awaited US inflation data, attempting to glean insights into the Federal Reserve’s policy direction and potential repercussions for global financial markets. Simultaneously, the yield gap between the US 10-year Treasury and its Chinese counterpart expanded to an all-time high, fueled by soaring US yields amid apprehensions that surging oil prices could spark inflation.

Earlier in the market session, the People’s Bank of China (PBOC) established the midpoint rate at 6.7766 per dollar, marking its strongest level since February 8, 2023, yet 692 pips lower than a Reuters estimate of 6.7074. The spot yuan is permitted to fluctuate 2% on either side of the fixed midpoint throughout the trading day.

Since November 2025, the central bank has persistently positioned the yuan midpoint lower than market predictions, according to analysts and traders, as a measure to stabilize the currency and stifle swift appreciation.

Throughout November 2025, the central bank has repeatedly set the yuan midpoint below market expectations, as per analysts and traders, who view this tactic as an attempt to maintain currency stability and prevent rapid appreciation. In the spot market, the onshore yuan traded at 6.7080 per dollar as of 0321 GMT, closely aligning with the 3-1/2-year high of 6.7050 reached earlier in the week. Its offshore counterpart concluded at 6.7070 yuan per dollar.

“A sideways trajectory for the yuan is probable before the US inflation data is released,” noted a trader at a Chinese bank, emphasizing that forthcoming figures could significantly influence the Fed’s policy trajectory, the dollar’s course, and consequently, sway major currencies. Traders are now pricing a roughly 60% probability of a Fed rate hike this month after a robust-than-projected nonfarm payrolls report last week.

Elias Haddad, global head of markets strategy at Brown Brothers Harriman, remarked that the ongoing appreciation of the yuan vis-à-vis the dollar remained uninterrupted. “In our assessment, a sustained appreciation of China's currency could facilitate the country's transition to consumer spending by enhancing disposable income through reduced import costs,” he stated in a report, following official data revealing that China's factory-gate inflation and consumer price growth accelerated last month due to higher energy costs.

The yuan has appreciated by approximately 4.3% against the dollar thus far in 2023, ranking among Asia's top-performing currencies.