Yuan Rises Against Currency Basket to Highest Since September 2022
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Bloomberg's real-time CFETS basket proxy rose to 101.41 on Tuesday, a near-four-year high; China's limited direct exposure to the Iran conflict has turned the yuan into a relative safe-haven play.
How far has the yuan climbed?
The CFETS basket index — a gauge of the yuan's strength against a basket of trading-partner currencies — hit 101.41, the highest since September 2022, extending gains to a third straight session.
Offshore yuan rose 1% against the dollar in May, outperforming most major Asian currencies.
This means → the yuan is strengthening not just against the dollar but across the full basket — a sign of broad, "real" strength.
Why is the yuan rallying now?
The Iran conflict has lifted global risk aversion, but Beijing's diversified energy mix and relatively limited direct Middle East exposure give Chinese assets a safe-haven premium.
In plain terms = when markets worry about the Middle East, capital sees China as less exposed and parks money in yuan assets to ride out the storm.
Bloomberg, citing informed traders, reports that onshore clients have been net buyers of yuan since last week, keeping appreciation pressure elevated.
Is the central bank letting it rise?
The PBOC is still supplying dollars to smooth volatility, but the scale is gradually narrowing — this signals an acceptance of yuan strength.
Fiona Lim, senior FX strategist at Maybank, notes that recent fixing patterns confirm the central bank's tolerance, adding that this "aligns with the PBOC's recent concern over imported inflation."
This means → a stronger yuan lowers import costs and eases domestic price pressure, giving the PBOC an incentive to let the trend run.
Where is the ceiling?
Stephen Chiu, chief EM FX strategist at Bloomberg Intelligence, warns that Beijing's preference for exchange-rate stability and potential dollar buying by state banks could cap further gains.
The policy toolbox includes: sharply lowering the daily fixing, tightening PBOC window guidance, and raising the foreign-currency reserve-requirement ratio to drain onshore dollar liquidity.
Put simply = the central bank can live with a gradual climb, but if the pace gets too fast, it has enough levers to hit the brakes at any time.
Content is for reference only, not financial advice.