Yuan hits two-year high as won languishes near crisis-era lows

China's yuan edged higher on Friday, on track for its first weekly gain in three weeks, while South Korea's won remained under pressure near multi-year lows — underscoring a widening divergence across Asian foreign exchange markets that has prompted emergency policy responses in Seoul.

Yuan Gains on Softer Dollar

The yuan strengthened to around 6.78 per dollar on Friday after the People's Bank of China lifted its official midpoint guidance to 6.8047, its highest in more than two years. The move came after a weaker-than-expected U.S. jobs report pushed back expectations for Federal Reserve rate increases, sending the dollar toward its biggest weekly decline in nearly three months.klsescreener+1

The yuan's advance reflects broader structural support. Yuan-denominated trade settlements for China-linked commerce have grown from 13 percent in 2019 to 30 percent last year, according to Goldman Sachs The Goldman Sachs Group, Inc. ↘ 1.93%. Foreign investors now hold more than 4 trillion yuan in tradable A-shares, China's securities regulator said in May. MUFG analysts wrote in a July 3 outlook that Asia is "increasingly transitioning from a convergence story to a divergence story," with currency performance shaped by countries' participation in the AI-led investment cycle and domestic policy fundamentals.people+2

Won Under Siege as Seoul Acts

The South Korean won has suffered prolonged weakness this year, breaching 1,560 per dollar in June for the first time since 2009. As of July 3, the USD/KRW rate stood at 1,525.6 won, according to South Korea's Ministry of Finance.english.mofe+2

In response, the Korea Export-Import Bank on Thursday announced a ₩300 billion emergency low-interest loan program — the "Low-Interest Coexistence Loan for Overcoming High Exchange Rates" — aimed at small and mid-sized enterprises struggling with rising import costs. The program offers rates at the bank's procurement cost, and is part of a broader "Crisis Response Special Program" providing preferential rates of up to 2.2 percentage points below standard levels.ajupress+1

Undervaluation Debate Intensifies

The divergence has drawn renewed attention to chronic undervaluation across Asian currencies. BNY's Geoff Yu noted in a July 2 commentary that clients have "largely capitulated" on yen and won longs as these currencies remain weak versus the dollar and yuan, but suggested scope for a sharp rebound if U.S. policy pressures ease. Goldman Sachs has called the yuan more than 20 percent undervalued, while Brad Setser of the Council on Foreign Relations argued in June for coordinated G7 action to raise the value of all major Asian currencies.cfr+2

The won's struggles contrast with the yuan's managed appreciation — a gap that reflects diverging trade balances, capital flows, and policy choices likely to shape the region's currency landscape through the second half of 2026.