China's yuan strengthens after progress in Sino-US trade talks, but caution remains
SHANGHAI: The yuan strengthened on Monday despite dollar's rebound, reflecting market optimism after the US and China ended high-stakes trade talks on a positive note on Sunday.
But analysts caution that uncertainty remains over Sino-US ties as they await details of any agreement, while China's central bank reiterated it would prevent currency overshooting.
The yuan was trading around 7.2279 to the dollar in late morning, 0.13% stronger than the previous close. The global dollar index was up 0.3% in Asia trading hours.
US Treasury Secretary Scott Bessent touted 'substantial progress' in trade discussions over the weekend, while Chinese officials said the sides had reached 'important consensus' and agreed to launch another new economic dialogue forum. Details would be announced later on Monday.
Regarding the trade progress, 'we don't expect clear, directional breakthroughs in the short term,' Nanhua Futures said in a note to clients on Monday.
'In the backdrop of trade war 2.0, the long-term rivalry between China and the US in terms of economic resilience has just begun,' the brokerage said, expecting volatility ahead.
Guan Tao, global chief economist at BOC International and a former forex regulator, said the trade talks 'bolsters the yuan in the short term, but the road ahead is uneven and twisted.'
'The stakes, and complexity of the talks is unprecedented. There will be ups and downs, progress and stalemates,' he told a webinar. 'The biggest certainty is uncertainty.'
Reflecting a desire to keep the yuan relatively stable, China's central bank has set its guidance rate roughly around 7.20 per dollar over the past month. On Monday, the midpoint rate was set at 7.2066 prior to market open.
China's yuan slips against dollar
In its quarterly monetary policy report published on Friday, the People's Bank of China reiterated that it would 'resolutely' prevent forex overshooting risks, and keep the yuan basically stable.
China's best choice under the current environment is to keep the yuan stable against the dollar, while allowing it to depreciate against a basket of other currencies, said Wang Jinbin, economics professor at the Renmin University of China.
Such a strategy would steady capital flows, while aiding Chinese exports, he said.
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