The Chinese yuan strengthened on February 12, with both onshore and offshore rates pushing above the 6.90 per dollar threshold for the first time since May 4, 2023. Onshore spot opened at 6.9083 and rose intraday to a high of 6.8998, while the offshore (CNH) rate reached 6.8964. The People’s Bank of China set the daily midpoint at 6.9457, a 19-pip downward adjustment, even as the trade-weighted dollar index slipped modestly.
The crossing of 6.90 is as much psychological as technical: it reflects a growing market conviction that the yuan can hold gains after a period of volatile moves. Offshore and onshore quotes moving in tandem suggests a relatively unified market expectation rather than a short-lived offshore-driven rally. Year-to-date figures show the midpoint appreciating about 1.18%, onshore spot up a little over 1.2% and offshore roughly 1% against the dollar, underlining steady—if not dramatic—strength in the currency.
Several forces are likely underpinning the move. A softer dollar has provided a tailwind, while renewed foreign investment into Chinese bonds and equities—helped by programmatic access such as Bond Connect—has supported demand for yuan. Market participants also point to improving Chinese macro indicators and seasonal capital flows around the Lunar New Year as contributors. The central bank’s cautious fixing—setting the midpoint weaker than the spot—signals a desire to allow market appreciation without encouraging a rapid or disorderly rally.
The appreciation has immediate policy and economic implications. A firmer yuan eases imported inflationary pressures and can lengthen the central bank’s room to manoeuvre on interest rates, but it also squeezes exporters’ margins at a time when global demand is uncertain. For international investors, a steadily stronger yuan makes Chinese assets more attractive in local-currency terms but raises questions about future volatility if global risk sentiment or U.S. monetary policy shifts.
Risks to the recent trend are clear. A surprise turn in U.S. Federal Reserve policy or a sudden pickup in the dollar could quickly unwind gains, while weaker-than-expected Chinese growth data or renewed geopolitical tensions would sap investor confidence. The PBoC’s daily midpoint setting will be watched closely for clues about how far it is willing to let the currency appreciate and how aggressively it will step in to smooth moves.
Looking ahead, markets will focus on the interplay between U.S. macro surprises, next week’s Chinese data releases, and the pattern of daily midpoints from the PBoC. If the dollar remains subdued and China’s recovery narrative strengthens, the yuan could make further measured gains, but authorities retain tools and incentives to temper a rapid appreciation that could destabilise exporters and employment-sensitive sectors.