PBOC weakens yuan fixing for third straight day amid dollar rally

China Weakens Yuan Fixing for Third Straight Session as Dollar Strengthens

China’s central bank set a weaker yuan reference rate on Wednesday for the third consecutive trading session, a shift that comes as the U.S. dollar rallies on hawkish Federal Reserve expectations and European leaders intensify calls to address what they see as an undervalued Chinese currency.

The Fixing

The People’s Bank of China set the USD/CNY midpoint at 6.8195 per dollar on Wednesday, compared with 6.8171 the prior day, according to the South China Morning Post. The latest fixing was notably above the Reuters estimate of 6.7913, indicating the central bank is guiding the currency weaker than market models would suggest. The streak follows a three-year high for the fixing of 6.8088 set on June 15, which had been buoyed by easing trade tensions after President Donald Trump’s visit to China last month.tradingpedia

Dollar Strength and Fed Hawkishness

The yuan’s retreat coincides with a broad dollar rally triggered by the June 17 Federal Open Market Committee meeting, which surprised markets with a hawkish tilt. The U.S. Dollar Index surged to its highest level since May 2025. The Fed’s latest dot plot showed 9 of 18 policymakers expect at least one rate hike before year-end, a sharp departure from earlier expectations for rate cuts. CME FedWatch data showed the probability of a rate increase at the Fed’s July meeting surging above 34 percent, while expectations for a September hike reached nearly 70 percent.usnews

Yuan Outlook and ECB Pressure

Despite the near-term weakening, many financial institutions remain bullish on the yuan over a longer horizon. A May Reuters report noted that global banks have raised their yuan forecasts, with one U.S. bank projecting the currency reaching 6.50 per dollar within 12 months.reuters

Meanwhile, European Central Bank President Christine Lagarde on Monday urged global leaders to discuss the yuan’s undervaluation, citing International Monetary Fund research indicating the currency may be 15 to 16 percent undervalued when adjusted for international inflation differences. German Chancellor Friedrich Merz went further, claiming the yuan is undervalued by 30 percent and pointing to the 1985 Plaza Accords as a potential model for addressing currency imbalances.worldtradelaw

China has pushed back against such characterizations. PBOC Governor Pan Gongsheng reiterated at the China Development Forum earlier this year that China “has neither the need nor the intention to gain trade advantages through currency depreciation,” emphasizing the central bank’s commitment to allowing market forces to play a decisive role in exchange-rate formation.pdnews