China has signalled for the first time in nearly three years that it intends to moderate the yuan’s recent appreciation by setting Wednesday’s daily reference rate significantly weaker than market expectations. The People’s Bank of China (PBOC) fixed the yuan at 7.0733 per US dollar, approximately 170 pips below modelled estimates of 7.0554. This marks the widest gap since February 2022, suggesting deliberate efforts to restrain the currency’s gains amid improving sentiment towards China.

The yuan has been steadily approaching the psychologically important 7-per-dollar level. This appreciation has been supported by easing US-China tensions following a telephone conversation between Presidents Trump and Xi, along with the prospect of a Trump visit to China next year. Additionally, improved risk appetite, fresh inflows into Chinese equities, and broad dollar weakness—driven in part by fiscal concerns in the US—have all contributed to strengthening the renminbi.

With the yuan currently on course for its best annual performance since 2020, the latest fixing hints that Beijing aims to slow the pace of appreciation. This approach is likely intended to maintain export competitiveness while managing domestic liquidity conditions.

Forex traders should watch for further PBOC intervention or signals, as these moves can impact yuan volatility and trading opportunities.

Original Source: Eamonn Sheridan of investinglive.com