China’s central bank has intensified efforts to curb the yuan’s appreciation, intervening in foreign exchange markets as domestic demand remains sluggish despite the currency reaching 3-1/2-year highs.
The People’s Bank of China (PBOC) has guided the yuan weaker since November 2025, setting its daily trading midpoint below market expectations to temper gains. The currency has rallied nearly 9% against the dollar over the past 20 months, trading at around 6.72 per dollar on Monday. Analysts at HSBC and others expect the yuan to end the year near 6.68, while Goldman Sachs projects a 12-month target of 6.40.
Average daily turnover in the onshore spot market has declined to $31.2 billion this month, down from $42.2 billion in July and $39.9 billion a year earlier, signaling reduced speculative activity amid tighter controls.
Analysts attribute the PBOC’s caution to weak domestic demand and employment concerns, despite record trade surpluses exceeding $1 trillion. Chaoping Zhu, global market strategist at J.P. Morgan Asset Management in Shanghai, noted that while the yuan is undervalued, authorities prioritize stabilizing growth over full currency liberalization. Peter Berezin, chief global strategist at BCA Research, said Beijing would resist significant appreciation against the dollar.
Governor Pan Gongsheng reiterated in March that China neither needs nor intends to use currency devaluation for trade advantages. Robin Xing, chief China economist at Morgan Stanley, said recent tightening of outbound investment suggests trade surpluses alone do not justify appreciation, with the PBOC wary of soft domestic price dynamics.
Macquarie expects the yuan to trade at 6.72 by the end of 2026, while Larry Hu of the same firm emphasized the yuan’s alignment with global dollar cycles rather than domestic fundamentals. The IMF estimated in February that the yuan may be undervalued by as much as 20%.
The policy stance reflects broader efforts to balance external strength with internal economic stabilization as China navigates uneven recovery prospects.
