The offshore yuan strengthened to around 7.18 per dollar on Friday, extending gains from the previous session and reaching a fresh six-month high, supported by a weakening US dollar.
Offshore yuan hits fresh six-month peak
The greenback remained under pressure amid mounting concerns over the US fiscal outlook, as President Trump’s new budget bill—including significant tax cuts and increased defense spending—raised fears of further escalating the national debt and exacerbating the country’s long-term fiscal imbalances. This uncertainty weighed on investor sentiment, prompting a flight toward alternative currencies like the yuan.
The yuan's strength was further bolstered by an agreement between the US and China to maintain open lines of communication despite ongoing tensions on multiple fronts, following a high-level phone call between senior officials from both countries. This renewed commitment to sustained dialogue is viewed as a positive development, easing fears of a prolonged trade war and fostering optimism about the possibility of a more stable bilateral relationship. Market participants interpreted this diplomatic engagement as a signal that both sides remain willing to manage disputes through negotiation rather than escalation, which supported risk appetite and the yuan.
PBoC injects CNY500 billion
Meanwhile, in China, the central bank took proactive measures to underpin economic stability by injecting CNY 500 billion into the banking system via its one-year medium-term lending facility (MLF). This liquidity boost aims to ensure ample funding availability for banks and encourage credit growth at a time when China’s economic recovery remains fragile due to both domestic challenges and external uncertainties. The move reflects Beijing’s commitment to balancing financial stability with targeted support for growth, particularly in sectors affected by weaker demand and trade pressures.
Overall, the combination of a softer US dollar, improved diplomatic communication, and supportive monetary policy in China helped the offshore yuan rally, highlighting its growing role as a key currency in global markets amid shifting geopolitical and economic dynamics. Analysts note that continued vigilance will be necessary, however, as the trajectory of US-China relations and domestic economic indicators remain critical drivers for the yuan’s near-term performance.
