PBOC sets firm yuan fix to slow gains despite weak dollar (leans against yuan rally)

China’s central bank leaned against yuan strength with a firm fix, signalling a desire to slow appreciation rather than block it outright.

Summary:

China’s central bank signalled a continued preference for managing the pace of yuan appreciation rather than allowing a rapid strengthening, setting the daily onshore yuan reference rate notably weaker than market expectations despite broad US dollar softness.

The People’s Bank of China (PBOC) fixed the yuan at 7.0014 per dollar, holding the midpoint just above the closely watched 7.00 threshold. That compared with a Reuters modelled estimate of 6.9578, a sizeable divergence that underscored official resistance to near-term currency gains.

The fixing came even as the US dollar weakened globally and the yuan had been rallying in recent sessions, highlighting Beijing’s concern that excessive or rapid appreciation could undermine exporters, tighten domestic financial conditions, or encourage destabilising capital flows. By setting the fix well weaker than market models implied, the PBOC effectively leaned against one-way strengthening pressure without resorting to more overt measures.

Market participants noted that authorities have adopted a similar approach since December, repeatedly delivering weaker-than-expected fixings while still allowing gradual appreciation to proceed. The pattern suggests policymakers are focused on smoothing the path of the currency rather than defending a specific level or reversing the broader trend.

Strategists said the gap between the fixing and market expectations sends a clear signal that the PBOC wants to avoid a disorderly rally in the yuan, particularly at a time when China is seeking to stabilise growth, support exports and manage fragile domestic confidence. A faster move below 7.00 could also have encouraged speculative inflows or accelerated repatriation of offshore funds, outcomes authorities have historically sought to prevent.

The approach aligns with Beijing’s broader FX playbook: tolerate moderate, fundamentals-driven moves while using the fixing mechanism to discourage momentum-driven positioning. As long as the dollar remains soft and regional currencies firm, traders expect the PBOC to continue calibrating the fix to keep yuan gains controlled rather than abrupt.