Yuan Strengthens Despite Fed Rate Hike as China Stabilizes Currency

The Chinese yuan strengthened against the US dollar on Thursday as the People's Bank of China set its midpoint fixing at 6.7580 per dollar, a level not seen since February 3, 2023.

This move came despite the Federal Reserve raising interest rates by a quarter overnight and signaling more hikes in coming months, which normally would strengthen the US dollar.

Kimmy Tong, an FX strategist at Everbright Securities, believes that the central bank uses a 'counter-cyclical adjustment' within its fixing formula to curb excessive volatility and signal a preference for currency stability.

Some analysts think that the US rate hike had already been largely priced in by the market, while the pricing of yuan is not entirely driven by the China-US interest rate differential.