China’s yuan continues upward climb after Beijing’s stimulus roll-out

The Chinese yuan jumped to its highest level in over a year on Wednesday, following a series of heavyweight policy moves from its central bank a day earlier and an interest-rate cut from the US Federal Reserve last week, with analysts expecting the currency to continue to appreciate.

On Wednesday morning, the offshore yuan rallied to break the 7 per US dollar threshold for the first time since May 2023. The People’s Bank of China set the fixing rate at 7.0202 per US dollar on the same day, stronger than the previous day’s 7.051.

The yuan’s rise followed a set of sweeping changes announced by the PBOC on Tuesday, including a 0.2 percentage point cut to the benchmark policy rate, a 0.5 percentage point reduction in the reserve requirement ratio and several measures to bolster the beleaguered property sector.

Ding Shuang, chief economist for Greater China with Standard Chartered, said the recent appreciation of the yuan can primarily be credited to “market expectations around economic fundamentals.”

“While the PBOC’s rate cut widened the rate differential, [Tuesday’s] measures are stronger than expected and mark a landmark step, which encourages the market to anticipate further support for the economy,” Ding said.

He added the yuan will remain under appreciation pressure in the short term considering the faster pace of Fed rate cuts and Chinese exporters’ demand for foreign exchange settlement.

Central bank governor Pan Gongsheng said on Tuesday that the depreciation pressure on the yuan has eased markedly, shifting to appreciation after the monetary policy adjustment from major economies.

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