China's yuan hits more than four-year high as PBOC sets weaker fixing

China's yuan strengthened to its highest level in more than four years against the US dollar on Thursday. Reuters reported that broad weakness in the greenback and a reassessment of the US interest rate outlook supported the move. The advance came as markets awaited next week's meetings of the Federal Reserve, the Bank of Japan and the European Central Bank.

Yuan's four-year high came at 6.6740 per dollar

The onshore yuan touched 6.6740 per dollar, its strongest level since June 2022, Reuters reported.

The People's Bank of China set the daily midpoint at 6.7195 per dollar before the market opened on Thursday.

Reuters said the midpoint was 439 pips weaker than its estimate of 6.6756, marking the largest deviation on the weaker side since September 23.

China allows the onshore yuan to trade within a 2% band on either side of the daily midpoint, Reuters reported.

Onshore yuan traded at 6.6749 per dollar at 8:08 AM IST

The onshore yuan was trading at 6.6749 per dollar at 8:08 AM IST, Reuters reported.

The offshore yuan stood at 6.6744 per dollar, up around 0.01% in Asian trading, according to Reuters.

Exports and the China-US yield gap support the yuan

Currency traders cited by Reuters said strong exports and sustained foreign exchange settlement had supported the yuan this year.

The yield differential between China and the United States was close to its widest level on record, Reuters reported.

Reuters said the yuan's gains came as investors reassessed the US interest rate outlook amid renewed concerns over oil-driven inflation.

PBOC guidance seeks to moderate the pace of appreciation

The People's Bank of China has gradually strengthened its daily guidance for the yuan this year, although its fixings have remained weaker than market expectations, Reuters reported.

Traders and analysts told Reuters that the approach suggested the central bank was seeking to moderate the pace of the yuan's appreciation rather than reverse its upward direction.

China Merchants Bank analysts said continued conversion of export earnings into yuan could help the currency remain stable or appreciate further even if the US dollar index remained resilient.

Three major central-bank meetings are due next week

Markets were awaiting next week's meetings of the Federal Reserve, the Bank of Japan and the European Central Bank, Reuters reported.

Reuters reported that the three central banks were widely expected to keep interest rates unchanged while maintaining a hawkish policy stance.

Traders were pricing in only a small chance of a Federal Reserve rate hike at next week's meeting, with the next increase expected in December, Reuters reported.