China’s Yuan Climbs Past 7 Per Dollar as PBOC Caves in to Bulls

Core Viewpoint - The yuan has surpassed the psychological milestone of 7 per dollar for the first time since September 2024, driven by expectations that China's central bank will facilitate gradual currency appreciation to enhance market confidence [1]. Group 1: Currency Performance - The offshore yuan appreciated by as much as 0.2% to 6.9964 per dollar, following the People's Bank of China's strengthening of its daily reference rate to the highest level since September 2024 [1]. - The yuan is on track for its best performance against the dollar in five years, attributed to a decline in the US dollar, capital inflows into China's stock market, and reduced geopolitical tensions [2]. - In onshore trading, the yuan increased by 0.1% to 7.0067 per dollar, with a notable trend of dollar selling observed among major Chinese banks [3]. Group 2: Market Dynamics - The strengthening of the yuan is supported by the weakness of the dollar and seasonal foreign-exchange conversions by exporters, which may enhance the attractiveness of China's capital markets to foreign investors [3]. - Despite the recent gains, analysts suggest that the yuan remains undervalued by approximately 25% relative to economic fundamentals, considering China's persistent deflation [4]. - Predictions indicate that the yuan will likely maintain a strong position within the range of 6.95-7 per dollar in the first half of the upcoming year [5].