SHANGHAI: China's yuan inched higher against the dollar on Friday as seasonal foreign exchange settlements by companies outweighed broad dollar strength, which was fueled by growing investor bets that the Federal Reserve will raise interest rates in December.
The dollar held near a 19-month high and Treasury yields also rose, after US President Donald Trump said the United States does not need a deal with Iran, prompting some investors to weigh the possibility of an outsized 50-basis-point Fed rate hike next month.
However, the dollar's strength was offset by increasing "sell-on-rally" orders from domestic corporate clients, who took advantage of the firmer dollar as many began converting more foreign exchange toward the year-end, currency traders said.
Chinese exporters typically convert a larger share of their foreign exchange earnings into yuan toward the end of the year and ahead of the Lunar New Year, driven by accounting and administrative requirements, as well as seasonal demand for cash to fund bonus payments and holiday-related expenses. The jump in conversions usually leads to a rise in the yuan in December and January.
"Exporters continue to sell into upticks of the USD/CNY, creating a convincing environment for CNY appreciation to continue," said Lynn Song, chief economist for Greater China at ING.
"Considering the foreign currency left abroad over the past few years, and incoming foreign currency receivables with China's trade surplus set to hit a new record high in 2026 and remain strong in 2027, the stage is set for further CNY appreciation."
In the spot market, the onshore yuan was 0.05% higher at 6.6711 per dollar as of 0345 GMT, while its offshore counterpart was last at 6.6719.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7152 per dollar, 396 pips weaker than a Reuters estimate of 6.6756. The spot yuan is allowed to trade a maximum of 2% either side of the fixed midpoint each day.
Based on Friday's official midpoint, the CFETS yuan basket index, which tracks the yuan's trade-weighted value, rose to a 4-1/2-year high of 104.43 and gained 6.6% year-to-date, according to Reuters calculations based on official data.
Separately, currency traders said they were closely watching the Japanese yen, which was near the key 160-per-dollar threshold, as any official intervention to defend the currency could affect global currency markets. - Reuters
