Yuan near 8-month high on support from softer dollar, hopes for easing trade tensions
The spot yuan opened at 7.1652 per dollar and was last trading at 7.1658 as of 0250 GMT, 8 pips lower than the previous late session close, and 0.16% weaker than the midpoint.
'We expect the Chinese yuan to continue its gradual appreciation against the US dollar, potentially reaching 7.1 by year-end and 7.00 by mid-2026, assuming the tariff truce holds and the dollar continues to weaken,' analysts at UBS Global Wealth Management's Chief Investment Office said in a note.
'The main risk to our outlook is a breakdown in trade negotiations,' they said, adding that broad dollar weakness should help limit down in the yuan.
The yuan is 1.9% firmer this year against the dollar. The Chinese yuan has drawn support over the past two months from signs of easing trade tensions between Beijing and Washington.
Ahead of the market opening, the People's Bank of China set the midpoint rate at 7.1546 per dollar, 77 pips firmer than a Reuters' estimate.
The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.
Based on Wednesday's official midpoint setting, the yuan's trade-weighted value against its basket of currencies, as measured by the CFETS yuan basket index, fell to 95.09, the lowest level since January 4, 2021.
The US dollar hovered near 3 1/2-year lows as investors weighed the prospect of US interest rate cuts and the scramble for trade deals ahead of President Donald Trump's July 9 deadline for tariffs.
'We don't expect the RMB to appreciate significantly given persistent deflationary pressures and need to keep monetary policy accommodative,' said Morgan Stanley analysts.
'Pursuing currency appreciation on its own would exacerbate deflation, might be insufficient to secure a trade deal, and wouldn't bring sustainable rebalancing.'
The offshore yuan traded at 7.1637 yuan per dollar, down about 0.04% in Asian trade.
Hong Kong's de facto central bank said on Wednesday it sold $2.25 billion against the Hong Kong dollar after it hit the weak end of its trading band.
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