Offshore Yuan Hits Near 3-Week High

China’s offshore yuan strengthened to around 6.78 per dollar on Friday, extending gains from the previous session to its strongest level in nearly three weeks after the People’s Bank of China signaled greater tolerance for currency appreciation. The central bank set the yuan’s daily reference rate at 6.7989 per dollar, stronger than Thursday’s fixing of 6.8036 and below the closely watched 6.80 threshold for the first time since 2023. A fixing below 6.80 per dollar is widely viewed by investors as an indication that authorities are not seeking to restrain the yuan’s recent appreciation. Attention is now turning to a packed slate of Chinese economic releases due next week, including trade data, second-quarter GDP, industrial production, retail sales, and the unemployment rate. The figures are expected to provide fresh insight into the strength of the economy and could shape expectations for the yuan’s near-term direction.

The offshore yuan rose to around 6.79 per dollar on Thursday, snapping a three-session losing streak, as stronger producer-price growth reinforced expectations that deflationary pressures are easing despite still-muted consumer demand. Annual producer inflation rose to 4.1% in June from 3.9% in May, marking the fastest pace since July 2022, supported by higher commodity and energy costs amid the Middle East tensions. Meanwhile, annual consumer inflation eased to a three-month low of 1% from 1.2% in May. While rising global prices for oil, semiconductors, and industrial metals have lifted factory-gate prices, weak domestic demand has limited cost pass-through to consumers, keeping pressure on profit margins. On the monetary policy front, the central bank reiterated its commitment to maintaining an appropriately accommodative stance and strengthening financial support for domestic consumption, while acknowledging the persistent imbalance between robust supply and relatively weak demand.

The offshore yuan strengthened to around 6.79 per dollar on Wednesday, rebounding from the previous session as the People's Bank of China showed signs of resisting downward pressure on the currency. The central bank set the daily midpoint fixing at 6.8077 per dollar, just 59 pips weaker than Reuters' estimate. The gap between the official fixing and market estimates has narrowed considerably from levels exceeding 500 pips over the past month, reinforcing expectations of greater official support for the yuan amid stronger US dollar. The greenback remained supported by safe-haven demand after Washington carried out fresh military strikes against Iran and rescinded a sanctions waiver permitting Tehran to export oil to global markets. The yuan has also faced pressure in recent sessions after the World Bank projected that China's economy would slow to 4.4% in 2026 and 4.3% in 2027, while Beijing lowered its 2026 GDP growth target to 4.5%–5.0%, from around 5% over the previous three years.