(Bloomberg) — China vowed to prevent the yuan’s exchange rate from overshooting, sending yet another clear signal of its intention to slow the currency’s appreciation.
The People’s Bank of China said while it will maintain the exchange rate’s flexibility, it will strengthen efforts to guide expectations and guard against “overshooting risks” for the currency, according to its 2025 financial stability report released on Friday. The central bank also reiterated a pledge to keep the yuan basically stable on a reasonable equilibrium.
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The relatively strong language followed the PBOC’s move earlier in the day to place the yuan’s daily reference rate at a level that was below market estimates by a record margin.
It set the yuan’s so-called fixing at 7.0358 per dollar, 301 pips weaker than the average estimate of traders and analysts in a Bloomberg survey. The gap between the reference rate — which limits the onshore yuan’s moves by 2% on either side — and the forecast was the largest since the survey was initiated in 2018.
The move came after the offshore yuan advanced past the psychological level of 7 per dollar on Thursday for the first time since September 2024. The PBOC has steered the yuan toward a path of appreciation to appease Beijing’s trading partners but sought to maintain a gradual pace of gains to avoid a surge of hot-money inflows.
“The fixing sends a signal that the PBOC doesn’t want the yuan to appreciate too quickly,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “This is in line with its recent pledge in a quarterly monetary policy meeting to prevent the risk of exchange-rate overshoot.”
While the fixing was weaker than the market estimate, it’s still stronger than where it was in the previous session. The offshore yuan consolidated at 7.0043 after gaining in recent sessions.
The PBOC is adopting a cautious approach at a time when Wall Street Banks including Goldman Sachs Group Inc. and Bank of America Corp. are predicting that the Chinese currency will strengthen well beyond 7 in 2026. Even within China, a rising number of local economists and former central bank officials have called for a stronger currency to help rebalance the economy away from exports and reduce trade tensions.
Some strategists said the fixing’s recent weakness, along with state banks’ occasional purchases of dollars, will rein in speculative bets and prevent a one-sided gain in the yuan.
China Minsheng Bank expects seasonal foreign-exchange settlement to lend some support to the yuan in early 2026. However, with the fixing engineered to prevent sharp gains and the dollar’s decline slowing, it will be difficult for the Chinese currency to rally past 6.9 per dollar in the short term, Wen Bin and Li Xin, analysts at the bank’s research unit, wrote in a note.
–With assistance from Qizi Sun and Jacob Gu.
(Updates with latest PBOC remarks on exchange rate and price level)
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