China sets yuan midpoint at 16-month high, but touch softer than expectations

China's central bank on Wednesday set its official yuan midpoint at the highest level in nearly 16 months, following a sharp rally in the spot rate a day earlier. The onshore spot yuan finished trading at its strongest level in nearly 16 months on Tuesday, riding on improving domestic data and a widening interest rate gap favouring the Chinese currency.

China's central bank on Wednesday set its official yuan midpoint at the highest level in nearly 16 months, following a sharp rally in the spot rate a day earlier. The People's Bank of China (PBOC) set the midpoint rate at 6.8376 per dollar prior to the market open, 122 pips or 0.18% firmer than the previous fix of 6.8498. It was the strongest guidance rate since May 14, 2019.

However, the guided rate was still slightly weaker than market expectations of 6.8318, with some traders suspecting that the authorities might be starting to get a bit uncomfortable with the recent rapid gains in the yuan. The onshore spot yuan finished trading at its strongest level in nearly 16 months on Tuesday, riding on improving domestic data and a widening interest rate gap favouring the Chinese currency.