Yuan Rebounds After Strongest Fix in Six Months

The offshore yuan strengthened to around 6.89 per USD on Tuesday, snapping two sessions of losses after the central bank delivered its largest midpoint adjustment in over six months. The People’s Bank of China set the daily fixing at 6.9088 per dollar, 148 pips firmer than the previous level, signaling efforts to steady the currency amid heightened geopolitical tensions in the Middle East. Still, the midpoint came in weaker than market estimates, suggesting authorities are balancing support for the currency with flexibility. The move also follows recent steps by the central bank to adjust FX forward reserve requirements, highlighting its calibrated approach to rein in the fast-rising yuan while cushioning exporters from sharp swings. Attention now turns to China’s annual “Two Sessions”, scheduled from March 4 to around March 11, where authorities are expected to set economic targets, outline policy priorities, and release the 15th Five-Year Plan detailing objectives for 2026–2030.

The offshore yuan weakened to below 6.87 per dollar on Monday, extending the prior session’s losses, pressured by a stronger US dollar amid escalating conflict in the Middle East. The US and Israel carried out coordinated strikes on Iran over the weekend, killing Iran’s Supreme Leader, Ayatollah Ali Khamenei. Iran retaliated against US assets in neighboring countries, rattling global markets and effectively closing the Strait of Hormuz. As the world’s largest crude importer, China faces inflationary and growth pressures from surging oil prices. Beijing urged an immediate ceasefire and advised citizens in the region to evacuate. Markets are also focused on China’s annual Two Sessions from March 4–11, where policymakers will set economic targets and release the 15th Five-Year Plan for 2026–2030. Meanwhile, the PBOC officially cut the FX risk reserve ratio on forward sales from 20% to 0%, effective today, signaling efforts to curb the yuan’s recent rapid gains and stabilize capital flows.

The offshore yuan weakened to around 6.85 per dollar on Friday, snapping a four-session rally and retreating from a more than two-year high reached in the previous session, after the People's Bank of China adjusted policy settings to lower the cost of dollar forwards. The central bank announced it would slash the foreign-exchange risk reserve requirement ratio to zero from 20%, starting March 2. The latest move marks a shift from a September 2022 decision, when the PBOC raised the ratio to stem sharp yuan depreciation and curb capital outflows. Further weighing on the yuan were continued efforts by the PBOC to temper the currency’s rapid appreciation. The central bank set the daily midpoint fixing at 6.9228 per dollar, 800 pips weaker than Reuters’ estimate, marking the largest deviation on record. Despite Friday’s pullback, the offshore yuan remains on track for its strongest weekly performance since April 2023.