SHANGHAI: China's yuan inched higher to a fresh 14-month high against a broadly weaker dollar on Friday, but the central bank's growing unease about recent rapid rises in the Chinese currency limited its gains.
Market participants keep a close watch on the daily midpoint fixing by the People's Bank of China (PBOC) for any subtle changes to foreign exchange policy.
Friday marked the 11th session over the past 12 days that the central bank set a weaker-than-expected guidance, a move interpreted by markets as an official attempt to slow yuan gains.
The PBOC's yuan's midpoint fix at 7.0638 per dollar was the strongest since October 9, 2024, but 155 pips weaker than a Reuters estimate of 7.0483.
"PBOC will continue its stance of maintaining yuan stability (by) using the fix as a tether on spot prices regardless of directional cues from market forces," Maybank analysts said in a note.
They expect the yuan to "continue to break the 7-figure at one point in the first half of 2026 before trading sideways in line with the USD in the second half."
The onshore yuan hit a high of 7.0548 per dollar at one point, the strongest level since October 9, 2024, before trading 0.02% firmer at 7.0557 per dollar as of 0400 GMT.
If it finishes the late night session at the midday level, it would have gained 0.23% to the dollar for the week, booking the third straight weekly rise.
The yuan has also gained nearly 3.5% against the greenback this year and looked set for the biggest annual rise since 2020. Its offshore counterpart traded at 7.0535 per dollar.
Chinese leaders reiterated their pledge to keep the yuan basically stable at reasonable and balanced levels, according to a readout by the official Xinhua of the annual Central Economic Work Conference, which maps out policy agenda and targets for next year.
The authorities have also promised to maintain a "proactive" fiscal policy next year that would stimulate both consumption and investment to maintain high economic growth, which analysts expect Beijing to target at roughly 5%.
"The language on monetary and fiscal policies is more restrained than last year," said Michelle Lam, economist at Societe Generale.
"This signals only modest PBOC easing in 2026, consistent with recent communications indicating a less dovish tone."
In global markets, the dollar headed for its third straight weekly drop, hurt by the prospect of rate cuts next year after the Federal Reserve pushed back against hawkish market bets. - Reuters
