China’s Yuan surges past 7 per dollar onshore for the first time in 2 years

For the first time since 2023, the yuan advanced above the crucial 7-per-dollar threshold in the more strictly regulated onshore market, indicating China’s confidence in additional currency appreciation.

After the People’s Bank of China set a lower daily reference rate on Tuesday, the yuan increased as much as 0.1% to 6.9960 in local trading. The action was taken after the offshore yuan broke over the closely watched 7 mark in late December.

Movements in mostly free offshore trading are frequently regarded as less important than the yuan’s breakthrough in the local market, where it is constrained by a 2% trading band centred on the reference rate.

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Onshore, where state banks were more prominent in December, supporting official efforts to curb the yuan’s rise, authorities also maintain a tighter hold.

In order to placate trading partners, Beijing has guided the yuan towards appreciation. However, in order to prevent a spike in hot-money inflows, Beijing has attempted to orchestrate a moderate pace of increases.

In a report published in late December, the PBOC stated that it will preserve exchange rate flexibility while controlling expectations and preventing “overshooting risks.”