FX.co ★ Offshore Yuan Trades Near 32-Month High

The offshore yuan was trading around 6.96 per dollar on Friday, nearing its strongest level since May 2023. This rise was driven by renewed corporate demand for the currency. Chinese banks set a record in December for foreign currency conversions into yuan, spurred by expectations for further currency gains and typical seasonal demand. Further momentum was provided by the People's Bank of China (PBoC), which has been systematically strengthening its daily reference rate, indicating a controlled approach towards yuan appreciation. In response to the strengthening currency, global banks have updated their forecasts. Morgan Stanley now anticipates the yuan will reach 6.85 per dollar in the first quarter, while the Australia & New Zealand Banking Group projects 6.85 by the end of the year, and the Macquarie Group foresees 6.8. In related developments, Deputy Governor Zou Lan indicated that there's "some room" for reductions in reserve requirements and policy rates. Starting Monday, the PBoC will reduce rates on structural monetary tools by 25 basis points, decreasing the one-year relending rate from 1.5% to 1.25%. This week, the yuan is on track to achieve its largest weekly increase since May 2023.