Yuan Holds Firm Ahead of Key Economic Meeting

The offshore yuan held its gains around 6.93 per dollar, hovering near its highest level since May 2023, as improving outlooks for the currency bolstered sentiment. Major global investment banks have grown more constructive on the yuan after it broke through the key 7-per-dollar level late last year. The yuan rose about 4.5% against the dollar in 2025, supported by a softer greenback, shifting interest-rate expectations, and renewed confidence in China’s macroeconomic stabilization. Year-end forecasts from 13 banks now put the yuan at 6.91 per dollar, a notable upgrade from early December projections that had it staying above 7 until 2026. However, analysts expect any further appreciation to be gradual and carefully managed, as the PBOC has expressed unease over the yuan’s rapid gains. On the economic front, a private survey showed the composite PMI rose to a three-month high of 51.6 in January, as both manufacturing (50.3 vs 50.1) and services (52.3 vs 52) sectors continued to grow.

The offshore yuan strengthened to around 6.94 per dollar, approaching its highest level in thirty-three months, after a strong manufacturing PMI data boosted sentiment. A private survey showed China’s factory activity expanding at its fastest pace since October, driven by faster production and front-loading of shipments ahead of the extended Lunar New Year holiday. It contrasted with the official readings, which slipped back into contraction territory. Meanwhile, foreign exchange settlement demand remained strong and the central bank’s measured guidance through its daily fixings continued to support the yuan. In addition, expectations of an accelerated push for yuan internationalization are rising after President Xi Jinping emphasized building a strong financial system with a globally influential currency. Highlighted in a state publication, his remarks stress risk control, central bank strength, and reforms to support the real economy amid a weakening dollar.

The offshore yuan strengthened to around 6.94 per dollar in January, extending gains for a fourth consecutive month, as exporters ramped up currency demand ahead of the awaited holiday. Chinese firms typically accelerate the conversion of foreign earnings into yuan in the weeks before the Lunar New Year to fund employee bonuses and seasonal expenses. The currency has also been supported by an improving domestic outlook, underpinned by China’s sizable trade surplus, renewed investor interest in local equities, and rising expectations of additional policy stimulus. However, the gains have been partially restrained by the People’s Bank of China, which has set its daily reference rate weaker than market expectations since late November, signaling an intent to curb excessive appreciation. On Thursday, the US Treasury labeled the yuan “substantially undervalued” and called on China to allow the exchange rate to strengthen in a “timely and orderly” manner.