China's yuan inches higher as PBOC sets firmer guidance

China's currency, the yuan, experienced a slight increase against the US dollar on Thursday following the People's Bank of China's announcement of a stronger daily midpoint rate. Despite this positive move, the gains were limited by a stronger greenback, fueled by expectations of a potential Federal Reserve rate hike. The yuan closed at 6.6684 to the dollar, a 0.1% rise, after fluctuating between 6.6667 and 6.6718 throughout the trading day.

Prior to market opening, the PBOC had set the midpoint rate at 6.7174 per dollar, significantly higher than the 6.7191 estimate from Reuters. The yuan is permitted to trade within a 2% band of this midpoint rate each day. While strong export performance and corporate foreign exchange settlements provide a foundation for the Chinese currency, a stronger dollar index dampened expectations of steady yuan appreciation, according to ICBC (Asia) research.

The US dollar surged to its 19-month peak against major currencies on Thursday, as investors increased bets on further Federal Reserve tightening measures following stronger-than-anticipated October inflation data. In the meantime, China has implemented several measures to curb the yuan's ascent, as a prolonged currency rally could squeeze the already thin margins of exporters.

Over the past month, the yuan has depreciated by 0.2% against the dollar, and it has strengthened by 4.9% this year. Offshore trade saw the yuan at 6.6678 per dollar, marking a 0.09% increase. The six-currency dollar index was 0.175% higher at 103.05.