Central Bank Fixes USD/CNY at 7.0471, Deviating from Market Estimates

The People's Bank of China (PBOC) set the daily reference rate for the US dollar against the yuan at 7.0471 on Wednesday, a significantly weaker level than the Reuters estimate of 7.0240. This move is widely interpreted as a policy signal from the central bank, indicating a preference to lean against recent appreciation pressure on the Chinese currency.

Managed Float and Market Context

The PBOC operates a managed floating exchange rate system, allowing the yuan to trade within a 2% band around the daily midpoint. The fixing is closely watched as a barometer of official sentiment. The weaker-than-expected setting comes after the offshore yuan (CNH) recently strengthened past 7.02 per dollar, reaching its highest level since October 2024. In onshore trading, USD/CNY opened at its lowest point since September 30, 2024.

In a separate liquidity operation, the central bank injected 26 billion yuan via 7-day reverse repos, maintaining the interest rate at 1.4%.

Global Currency Movements

The yuan's dynamics unfold against a backdrop of broad US dollar weakness and strength in other major currencies:

  • British Pound (Cable): Rose to a 3-month high, breaking above 1.3530.
  • Euro: Also climbed to a 3-month peak against the dollar, trading above 1.1805.
  • Japanese Yen: Continued its strong weekly performance, with USD/JPY falling below 156.50. The yen found support from warnings by Japanese officials against excessive currency moves and data showing the Services Producer Price Index held steady at +2.7% year-over-year in November.

The concerted warnings from Japanese policymakers, including Finance Minister Satsuki Katayama, have prompted a reassessment of short-yen positions, reinforcing market sensitivity to potential intervention.