Yuan hits fresh multi-year peak as PBOC eases curb ahead of Trump-Xi summit

China's yuan surged to a three-and-a-half year high against the US dollar on Monday as the country's central bank eased its constraint on currency appreciation ahead of the upcoming meeting between China and US leaders. Prior to the summit involving US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, the yuan reached a peak of 6.6957 per dollar in early trading, marking the highest level since January 16, 2023.

The offshore yuan also strengthened to 6.6946 yuan per dollar, up 0.03% in Asian trade. The People's Bank of China set the midpoint rate at 6.7487 per dollar, the strongest level since February 3, 2023, though 536 pips below a Reuters estimate. The central bank has been setting its daily official yuan guidance below market expectations for nearly a year, interpreted as an attempt to slow the currency's appreciation.

However, the official midpoint has strengthened more rapidly this month, reducing the gap between the midpoint and market expectations. Analysts at Goldman Sachs noted that the PBOC's easing of resistance to yuan gains coincides with history, creating more room for the offshore spot yuan to strengthen further. The summit is expected to discuss AI, trade relations, supply chains, and Middle East tensions, with no major policy breakthrough anticipated.

While a stronger and more stable yuan could create a more constructive backdrop for US-China negotiations and reduce tensions, investors should remain cautious about interpreting the PBOC's move as the start of a sustained yuan appreciation cycle.