Chinese yuan hits 3.5-year high as dollar weakens

China's yuan strengthened to its highest level against the U.S. dollar in more than three years this week, as broad dollar weakness and expectations of tighter monetary policy in Japan pushed Asian currencies higher. The USD/CNY exchange rate fell to around 6.71 on Thursday, extending a rally that has seen the yuan gain nearly 4 percent against the dollar this year.hokanews+1

PBOC Walks a Tightrope

The People's Bank of China set its daily midpoint fixing near 6.78 per dollar, among the strongest levels since early 2023. The central bank continues to guide the currency through its daily reference rate, around which onshore trading is permitted within a 2 percent band. Analysts have noted the PBOC has consistently set the fixing weaker than market models predict, a signal that Beijing wants to prevent an excessively rapid appreciation.reuters+4

The balancing act reflects real economic pressures. China's economy expanded just 4.3 percent in the second quarter of 2026, its weakest quarterly growth since late 2022, according to Reuters Thomson Reuters Corporation ↘ 6.57%, missing the government's 4.5-to-5 percent annual target. A stronger currency helps reduce import costs but risks further squeezing exporters already contending with soft domestic demand. Reuters reported in late August that policymakers were actively working to rein in the yuan's advance and maintain stability.reuters+2

Yen Rally and Dollar Weakness Amplify Move

The yuan's gains are part of a broader shift in Asian currency markets. Bank of Japan Governor Kazuo Ueda signaled earlier this week that the central bank would debate raising interest rates at its September 17–18 meeting, reinforcing market expectations of a hike. The yen strengthened sharply in response, compounding pressure on the dollar and offering a tailwind to other regional currencies, including the yuan.japantimes+2

What Comes Next

The trajectory of the yuan could become a focal point in U.S.-China relations as diplomatic contacts continue. Looking ahead, the median analyst forecast compiled by Reuters puts the year-end dollar/yuan rate at around 6.68, suggesting limited further appreciation from current levels. For now, the central question remains whether Beijing will allow market forces to push the yuan higher or step up intervention to protect its export-driven recovery.reuters