The Chinese yuan weakened to 7.1405 against the US dollar on Monday, marking a 23-pip drop from the previous trading session. The move comes as the China Foreign Exchange Trade System (CFETS) set a lower central parity rate, signaling a modest depreciation in the currency’s official reference value.
Under China’s foreign exchange system, the central parity rate—often referred to as the midpoint—serves as a benchmark for daily trading. The yuan is allowed to fluctuate by up to two percent above or below this rate during the trading day. This managed float mechanism is designed to maintain currency stability while allowing market forces some influence.
The CFETS determines the parity rate based on a weighted average of quotes from designated market makers before the interbank market opens each business day. This approach incorporates both domestic and international market conditions, as well as policy considerations from the People’s Bank of China (PBOC).
Monday’s weaker yuan fixing coincided with positive momentum in Asian equity markets, following an extended China-US tariff truce. The easing of trade tensions has helped stabilize investor sentiment, though currency fluctuations remain a focus for traders navigating shifting monetary policy expectations.
Analysts note that while the 23-pip move is relatively modest, it reflects ongoing adjustments in China’s currency strategy amid global economic uncertainties. Market participants will be watching upcoming data releases and PBOC policy signals for clues on the yuan’s next direction, especially as the dollar’s strength and global capital flows remain key influencing factors.
Source: Punch