China’s central bank has fixed the yuan at its strongest rate against the US dollar in more than three years, underscoring Beijing’s determination to internationalize its currency and reduce reliance on the dollar amid growing global skepticism toward US assets.
According to SCMP, the People’s Bank of China (PBOC) set the yuan’s daily midpoint fixing at 6.8487 per US dollar on Thursday — the strongest level since April 2023. This marked a noticeable tightening from Wednesday’s rate of 6.8562 and continues a steady appreciation trend that has seen the yuan gain 2.64% against the greenback so far this year.
Analysts increasingly expect further strengthening, with some forecasting the currency could reach 6.65 per dollar by the end of 2026. While a stronger yuan aligns with Beijing’s long-term goals of rebalancing the economy toward domestic consumption and enhancing the currency’s international credibility, it also introduces fresh challenges for China’s massive export sector.
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The move comes at a time of persistent weakness in the US dollar, which has been weighed down by policy uncertainty in Washington, questions surrounding the Federal Reserve’s independence, and concerns over America’s long-term fiscal sustainability. The US dollar index stood at 97.97 on Wednesday, a sharp decline from over 119 at the start of the year.
Serena Zhou, senior China strategist at Mizuho Securities Asia, said Thursday’s fixing reflected improved risk sentiment in Asian markets following positive signals from the Middle East.
“Today’s fixing more reflects an improvement in Asian market sentiment driven by Middle East developments,” she said. “Expectations that the US and Iran may be approaching a peace deal have lifted equities and improved confidence in the yuan.”
Zhou anticipates the yuan trading around 6.80 this quarter before strengthening further to 6.65 by year-end. She noted that China’s policy objectives, reducing trade imbalances and boosting domestic demand, are “broadly aligned with a gradually stronger currency.”
Beijing’s Push for Yuan Internationalization
The yuan’s rise is part of a broader, deliberate strategy by Beijing to elevate the currency’s role in global finance. China has aggressively promoted cross-border yuan settlement, expanded currency swap lines, and supported the development of offshore yuan markets in hubs like Hong Kong, Singapore, and Dubai.
This momentum is clearly visible in the data. According to the Bank for International Settlements, the yuan’s share of global foreign exchange turnover has climbed to 8.8% from just 2% in 2013. It now ranks as the third most active currency in cross-border trade settlement, with a share exceeding 7%.
Recent developments have added fuel to the trend. In April, the United Arab Emirates indicated it could settle oil transactions in yuan if dollar supplies face disruption. Such moves, though still limited in scale, signal growing interest among commodity producers and emerging markets in diversifying away from the dollar.
The currency’s appreciation is also likely to feature prominently in the upcoming summit between Chinese President Xi Jinping and US President Donald Trump, expected in Beijing in mid-May. Trump has repeatedly accused China of keeping its currency artificially weak to gain unfair trade advantages — a charge that China’s central bank governor firmly rejected during talks in March.
Impact on Exporters and Corporate Profits
Despite the stronger yuan, China’s export machine has shown surprising resilience so far. Customs data showed exports rose 11.9% year-on-year in the first quarter. However, the currency shift is beginning to create tangible financial pressure for individual companies.
Major exporters have reported significant foreign exchange losses in recent months. Electric vehicle giant BYD swung from a 1.9 billion yuan gain in the first quarter of 2025 to a 2.1 billion yuan loss this year — a nearly 4 billion yuan swing that hurt its net profit. Optical module maker Eoptolink saw financial expenses surge 1,678% year-on-year to 522 million yuan, largely due to currency losses, while construction equipment leader Sany Heavy Industry recorded around 800 million yuan in FX-related losses.
Analysts caution against overinterpreting these headline figures. Soochow Securities argued in a January report that Chinese exporters’ competitiveness today relies more on technological superiority, supply chain efficiency, and product quality than on pure price competition. The increasing use of the yuan in trade settlement has also reduced many companies’ exposure to currency swings.
“Large exporters typically hedge against huge currency moves through forward contracts and options,” Zhou noted. “The actual impact is often more manageable than headline figures suggest.”
Exporters are also showing a greater willingness to convert dollar earnings back into yuan as appreciation expectations build, creating additional natural support for the currency.
But for Chinese policymakers, managing the yuan’s rise involves a careful balancing act. A stronger currency helps control imported inflation, supports household purchasing power, and enhances Beijing’s narrative of a stable and reliable financial system. However, too rapid an appreciation could undermine export competitiveness at a time when global demand remains uneven, and trade tensions persist.
The PBOC’s daily fixing mechanism gives authorities significant influence over the currency’s trajectory, allowing them to guide the market while maintaining an appearance of flexibility. The current path suggests Beijing is comfortable with gradual appreciation but remains ready to step in if volatility threatens economic stability.