China’s Yuan Gains Less Than 1% Amid US Dollar Weakness

The Chinese yuan strengthened by less than 1% against the US dollar this week. This comes despite a more than 2% decline in the US dollar index since late July. Analysts observed that the People's Bank of China (PBOC) has been careful about allowing a sharp rise in the yuan. This caution persists even as the US dollar weakens due to actions in the Treasury market. Gavekal Dragonomics noted that the yuan's small gain shows Beijing's reluctance to push the currency higher. He Wei, a China economist at the firm, said the PBOC's response to US actions has been significant. The bank resisted market pressure for appreciation and allowed some depreciation in trade-weighted terms.

PBOC's Stance on Yuan

On Thursday, the PBOC set the yuan's midpoint at 6.7840 per US dollar. This was slightly weaker than the previous day's rate of 6.7829. The midpoint was also lower than the offshore yuan, which traded at 6.721 per dollar at midday. Analysts expect that the yuan will not see major movement in the coming months. This reflects the PBOC's cautious approach to currency management in 2026.

US Dollar Recovery

Meanwhile, the US dollar showed signs of recovery. It rebounded from last week's losses as investors awaited insights on the Federal Reserve's policy at the upcoming Jackson Hole symposium. The dollar index stood at 99.158, up about 0.3% this week. Economic data showed that inflation remained higher than expected. This supports expectations for strict interest rates until the end of the year. Elias Haddad, global head of markets strategy at Brown Brothers Harriman, noted that the US economy continues to grow faster than other major economies. This trend supports the dollar's strength.

Related coverage: Swiss Franc Gains as US Treasury Signals Bond Buybacks.

Based on reporting by: scmp.com, businesstimes.com.sg