NextFin News - China’s yuan has climbed to its highest level against a basket of major trading partners in nearly four years, a milestone that highlights the currency’s resilience even as it faces persistent depreciation pressure against a resurgent U.S. dollar. The CFETS RMB Index, which measures the yuan’s value against 24 currencies, reached a level not seen since 2022, according to data from the China Foreign Exchange Trade System. This appreciation against the basket occurs despite the yuan remaining relatively stable or slightly weaker in direct exchange with the dollar, reflecting a broader trend where the Chinese currency is outperforming other major peers like the Japanese yen and the euro.
The divergence between the yuan’s performance against the dollar and its performance against the basket is a direct result of the U.S. Federal Reserve’s "higher-for-longer" interest rate stance under the second term of U.S. President Trump. While the dollar has gained broad strength globally, the yuan has held its ground more effectively than most, leading to its mathematical rise within the trade-weighted index. For the People’s Bank of China (PBOC), this strength is a double-edged sword. While a robust basket index signals financial stability and prevents capital flight, it simultaneously erodes the price competitiveness of Chinese exports at a time when the domestic economy is still grappling with a prolonged property sector slump and tepid consumer demand.
Ken Cheung, chief Asian FX strategist at Mizuho Bank, noted that the PBOC appears comfortable with a stronger basket for now as a means to anchor market expectations. Cheung, who has long maintained a pragmatic view on Chinese monetary policy, suggests that the central bank is prioritizing "stability over stimulus" in the foreign exchange market. However, this perspective is not universally shared. Some market participants argue that the current strength of the CFETS index is an accidental byproduct of the dollar’s dominance rather than a deliberate policy goal, and that the PBOC may eventually need to allow the yuan to weaken against the basket to support the manufacturing sector.
The rise in the index also coincides with a scheduled adjustment to the CFETS basket weightings. Starting in 2026, China has lowered the weight of major currencies like the dollar and the euro in the index, reflecting shifting trade patterns toward emerging markets and the "Global South." This technical shift means the yuan’s value is increasingly tied to a more diverse set of economies, potentially insulating it from idiosyncratic shocks in the U.S. or Eurozone, but also making the index more sensitive to the volatility of developing market currencies.
From a corporate standpoint, the yuan’s basket strength is creating a complex environment for China’s massive export engine. Companies selling to Europe or Japan are finding their goods more expensive in local terms, even if the dollar-yuan rate remains favorable. This "stealth appreciation" could force the PBOC to intervene if the index climbs much higher, as a level significantly above 100 on the CFETS scale has historically triggered verbal or physical pushback from Chinese authorities to protect trade margins. The current trajectory suggests that while the yuan is a pillar of stability in a volatile global market, the ceiling for its basket appreciation may be approaching as economic realities at home demand a more competitive exchange rate.
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