China's Yuan Strengthens Ahead of National People's Congress

Yuan Strengthens After PBOC Sets Higher Reference Rate Ahead of National People’s Congress​

Stronger-Than-Expected Midpoint Signals Policy Comfort With Appreciation​

The Chinese yuan advanced on Tuesday after the People's Bank of China set a stronger-than-expected daily reference rate, signaling policymakers’ comfort with continued currency appreciation ahead of the country’s key political gathering, the National People’s Congress.

In domestic trading, the yuan climbed as much as 0.5 percent to 6.8750 per dollar, marking its strongest level since mid May 2025, according to Bloomberg. The move followed what was described as the largest upward adjustment to the reference rate in recent months.

The decision came a day before China’s most significant annual political event, when authorities typically seek to reinforce market confidence and ensure financial stability.

Central Bank Adjustments Reflect Managed Currency Strategy​

A firmer reference rate suggests official tolerance for gradual gains in the currency, particularly after the central bank removed a surcharge on bets against the yuan.

However, according to Reuters, the People's Bank of China also acted last Friday to slow the yuan’s advance. Authorities eliminated the reserve requirement tied to foreign exchange forward contracts, a move aimed at easing pressure on exporters and encouraging dollar demand.

The adjustment followed Thursday’s rally, when the currency touched its highest level against the dollar in nearly three years. It edged slightly lower on Friday, interrupting a surge driven by an unexpected jump in exports.

Yuan Up Over 7 Percent Since April Last Year​

The yuan has strengthened more than 7 percent against the dollar since April last year. Recent measures by the central bank, including a softer-than-anticipated daily trading band set on Friday, represent its clearest effort so far to moderate the sustained rally, Reuters reported.

According to Hong Kong based publication The Standard, the People's Bank of China manages the yuan by allowing it to fluctuate within a 2 percent range on either side of a daily midpoint fixed each morning.

Forex Risk Reserve Ratio Cut to Zero​

A report by Global Times stated that the PBOC reduced the foreign exchange risk reserve ratio on forward currency sales from 20 percent to zero, effective Monday.

This marks the first time in nearly three and a half years that the central bank has deployed this counter cyclical tool. Analysts cited by the publication said the move would lower hedging costs for companies, stabilize sentiment in the foreign exchange market, and help temper the yuan’s rapid appreciation.

In an interview with CNBC, Julia Wang, North Asia chief investment officer at Nomura, said she expects only measured gains for the yuan in the near term. She emphasized that exchange rate flexibility is more important than outright strength if the renminbi is to expand its global role. She also noted that investors are closely watching Beijing’s fiscal plans at the upcoming Two Sessions.