China's renminbi strengthened to its highest level in more than three and a half years against the US dollar on September 21, after the People's Bank of China narrowed the gap between its daily midpoint and market expectations, signalling a softening of its long-standing resistance to currency appreciation.
The onshore yuan touched 6.6950 per dollar, its strongest reading since January 16, 2023, before closing the domestic session at 6.6955 — the strongest such close since June 30, 2022. The offshore yuan traded at 6.6946 per dollar in Asian hours, up approximately 0.03 percent.
The move came hours after US Treasury Secretary Scott Bessent and Chinese Vice-Premier He Lifeng concluded preparatory talks in New York on September 20, setting the stage for the summit between President Donald Trump and President Xi Jinping scheduled for September 23-25. The two sides are expected to discuss artificial intelligence, trade relations, supply chains and Middle East tensions, although analysts anticipate no major policy breakthroughs.
The PBOC set the midpoint rate at 6.7487 per dollar, its strongest since February 3, 2023, yet still 536 pips weaker than a Reuters poll estimate. The yuan is permitted to trade within a 2 percent band on either side of that fixed midpoint each day. For nearly a year the central bank has kept its official guidance rate consistently weaker than market expectations, a posture traders and analysts interpreted as an effort to slow renminbi gains. In September, however, the midpoint has strengthened at a faster pace, bringing it closer to market-expected levels and suggesting the PBOC has begun easing its grip.
Goldman Sachs analysts said in a note that the pre-summit strengthening of the fixing is consistent with recent precedent, creating additional room for offshore spot to appreciate further. "The fact that the summit is occurring should help maintain a stable trading relationship," the bank said, adding that Chinese policymakers should feel comfortable allowing sustained but gradual currency appreciation.
Not all analysts share that optimism. OCBC Bank cautioned that the recent move may reflect policy-managed stability designed to present a constructive backdrop for the leaders' meeting rather than the start of a lasting appreciation cycle. "Given the wide US-China yield differential and still-soft domestic fundamentals, part of the recent appreciation may reflect policy-managed stability around the summit rather than a fundamental re-rating of the renminbi," OCBC said in its own note.
Broader currency markets were largely muted. The dollar index, which tracks the greenback against six major peers, held steady at 100.23 after gaining more than 1 percent the previous week following a hawkish rate decision by the Federal Reserve.
The significance of the yuan's move lies in its timing. A stronger renminbi helps reduce the scope for renewed accusations of competitive devaluation ahead of negotiations that are expected to touch on China's large trade surplus. US Treasury Secretary Bessent had earlier this month called China's current account surplus unsustainable at the G20 meeting. China's exports rose 25 percent year-on-year in August, keeping the trade imbalance firmly on the agenda.
Whether the PBOC's softer stance persists beyond the summit will depend on the outcome of the talks and on domestic economic conditions, which remain subdued. Credit demand from households and businesses has weakened — new yuan loans fell by 340 billion yuan in July, the deepest contraction on record — and the property sector continues to contract. A sustained appreciation cycle would require not only a more favourable external environment but also firmer signs of domestic recovery.
Sources
1. The Straits Times (Reuters) — straitstimes.com 2. MarketScreener (Reuters) — marketscreener.com 3. Aju Press — ajupress.com
