Yuan Surges to Six-Week High on Strong Central Bank Fixing

China’s Yuan: China's yuan staged a remarkable rally against the dollar, hitting a six-week high after the extended Labor Day holiday. This surge was underpinned by a combination of factors, including a weakening U.S. jobs market, Federal Reserve Chair Jerome Powell's confirmation of the central bank's easing stance, and suspected Japanese interventions boosting the yen.

The People's Bank of China (PBOC) responded by setting a markedly strengthened midpoint fixing, aligning it with offshore movements. Despite efforts to bolster stability, the midpoint remained higher than market projections, indicating the PBOC's continued intervention to maintain currency stability.

On the domestic front, the onshore yuan marked its strongest opening since late March, buoyed by robust gains in Hong Kong stocks. Notably, the Hang Seng Index surged over 4 per cent in May following an impressive performance in April.

Key figures reveal the onshore spot yuan trading at 7.2142 per dollar by midday, while its offshore counterpart stood at 7.2185 per dollar. The PBOC's midpoint setting came in at 7.0994 per dollar, representing a firmer stance compared to the previous fix.

Despite facing headwinds against major trading partners, as indicated by the CFETS index reaching its lowest level since April 11, the yuan maintained a solid uptrend, boasting a 2.67 per cent increase year-to-date.

These developments underscore a notable strengthening of the yuan amidst a dynamic global economic landscape and strategic central bank manoeuvres.

With Reuters inputs