Yuan devaluation claims ring hollow as currency nears 28-month high, Reuters says
The yuan's approach toward a 28-month high on a trade-weighted basis directly undermines the political traction of undervaluation arguments, and the Reuters analysis suggests that dynamic is already shaping FX positioning: selling USD/CNY on spikes is described as the path of least resistance, with offers likely to build around the 7.8000 psychological barrier. Lagarde's comments, while reflecting the IMF's 15-16% undervaluation estimate, may find less market sympathy given the currency's recent trajectory, and the PBOC's midpoint settings appear to confirm that Beijing's priority is dampening volatility rather than engineering depreciation. The rare earths angle adds a geopolitical dimension that goes beyond FX: China's willingness to deploy export controls as a trade counter-weapon suggests that international pressure on the yuan could escalate into a broader economic confrontation rather than simply a currency dispute.
China's yuan is nearing a 28-month high on a trade-weighted basis, undermining claims of deliberate devaluation even as ECB President Lagarde calls for scrutiny of the currency's level, Reuters reports.
Summary:
- In an opinion piece, Reuters argued that accusations of deliberate yuan devaluation look increasingly unconvincing as the currency outperforms its peers and approaches a 28-month high on a trade-weighted basis
- ECB President Christine Lagarde said on Monday that the yuan, which the IMF considers 15-16% undervalued, should be examined given the threat that large trade imbalances pose to global economies, per the Reuters column
- The yuan has rebounded from an April-May decline and its relative stability against a broadly rising US dollar is the key driver of its recent outperformance on a trade-weighted basis, according to the Reuters analysis
- The PBOC's USD/CNY midpoint settings suggest the central bank is focused on managing volatility rather than pushing the yuan lower, with the magnitude of its adjustment factor inconsistent with a deliberate depreciation strategy, per the Reuters opinion piece
- Beijing is using the yuan's relative strength to push back against international calls for further curbs on Chinese imports, while simultaneously wielding rare earth export controls as a trade counter-weapon, according to the Reuters column
- For FX traders, Reuters argued that the combination of yuan outperformance and political pressure from the EU endorses a strategy of selling USD/CNY on spikes, with offers expected to build around the 7.8000 psychological level
Accusations that China is deliberately keeping its currency weak are becoming harder to sustain, according to a Reuters opinion piece published this week, as the yuan continues to outperform its peers and edges toward levels that undercut the devaluation narrative entirely.
The column notes that the yuan has been rising on a trade-weighted basis, rebounding from a pullback in April and May to approach a 28-month high last seen in January 2025. The primary driver of that outperformance is not active Chinese support but relative stability: as the US dollar has surged against most other currencies, the tightly managed renminbi has held its ground, producing gains in trade-weighted terms by default. The result is a currency that looks stronger, not weaker, than most of its peers at a time when criticism of Chinese exchange rate policy is intensifying internationally.
That criticism received a high-profile airing on Monday when ECB President Christine Lagarde said the yuan warranted closer examination, pointing to the IMF's assessment that the currency is undervalued by 15 to 16 percent and arguing that the scale of global trade imbalances poses risks to the broader international economy. The Reuters analysis, however, suggests Lagarde's comments are likely to carry limited weight with a market that is watching the yuan strengthen in real terms and reading PBOC midpoint settings as evidence of volatility management rather than depreciation engineering.
The People's Bank of China's daily USD/CNY fixing is central to that reading. The magnitude of the adjustment factor the PBOC applies to its midpoint, the Reuters column argues, is consistent with a central bank trying to smooth swings in a rising dollar environment, not one trying to push the yuan lower. That distinction gives Beijing a credible counter-narrative to deploy against trading partners calling for action on currency alignment.
China is not relying solely on the yuan's market performance to make that case. Beijing has been brandishing its control over rare earth exports as a trade weapon in response to international pressure for additional curbs on Chinese imports, a posture that signals it is prepared to escalate on multiple fronts simultaneously rather than absorb external criticism passively.
For currency traders, the Reuters opinion piece concludes that the political and market dynamics both point in the same direction. The EU's complaints about an undervalued yuan, rather than building a case for further weakness, are more likely to reinforce the rationale for selling US dollar strength against the yuan on any meaningful spike, with offers expected to cluster around the 7.8000 psychological barrier as a natural ceiling for the pair.
People's Bank of China Governor Pan Gongsheng
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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