China Sets Strongest Yuan Fix Since January as US Dollar Plunges

Yuan flexes muscle as greenback stumbles—Beijing's currency move signals strategic positioning in global markets.

Dollar's Decline Drives Policy Shift

China's central bank just set its most aggressive yuan reference rate in over seven months. The move follows a sharp drop in the US dollar index—traders are scrambling to adjust positions as currency dynamics shift overnight.

Strategic Currency Play

This isn't random policy tweaking. Beijing's pricing the yuan at levels not seen since winter, capitalizing on dollar weakness to boost export competitiveness. The PBOC's playing chess while others check exchange rates.

Market Ripples Expected

Forex markets brace for volatility as China asserts monetary sovereignty. The adjustment could trigger cascading effects across emerging market currencies—and frankly, watching traditional finance institutions play catch-up to currency realities is almost entertaining. They still think SWIFT transfers are cutting-edge.

Beijing pumps liquidity into market to calm bond stress

The PBOC also moved aggressively to pump cash into the system this month. Beijing added 600 billion yuan ($84 billion) through a mix of one-year Medium-Term Lending Facility loans and three- and six-month outright reverse repos.

Bloomberg’s tally showed this was the largest monthly liquidity injection since January. The injection came as yields surged in the latest 30-year government bond auction, with investors demanding the highest payouts since December.

As the central bank added cash, China’s overnight repo rate fell to 1.35%, dropping seven basis points. Futures tied to 30-year government bonds also jumped as much as 0.7%, their strongest one-day rise since April.

The goal is to maintain easy funding conditions while borrowing demand stays high, and at the same time, avoid a fire sale in bond funds as more retail money flows into equities.

PBOC has leaned hard into its two main tools, the MLF and reverse repos, after earlier policy tweaks this year gave them more flexibility. Officials are trying to balance that fresh money push with the risk of outflows from banks, as individual investors chase hot stocks and abandon savings accounts.

Chip stock ETFs overheat as investors rush in

Over in equities, Chinese tech funds saw massive demand. Premiums on chip-related ETFs soared last week, signaling intense buying activity. The CPIC SSE STAR Chip Design Thematic ETF surged to a 6.2% premium on Friday, well above its historical average of just 0.1%.

Two other major chip funds, the Penghua SSE STAR Chip ETF and the China Universal SSE Science and Tech Innovation Board 50 ETF, also traded at higher-than-usual premiums.

These premiums show that people were buying these ETFs well above their net asset value, often a sign of speculative fever. The surge followed news that DeepSeek’s new AI model had launched, boosting investor confidence in the semiconductor industry. There’s also renewed belief that Beijing’s tech self-reliance push will favor domestic chipmakers.

That Optimism fueled a massive run-up in tech indexes. The Star 50 Index, which focuses on hardware stocks, jumped 5.8% on Monday, bringing its total monthly gain to around 20%.

The CSI 300 Index added over 1%, building on last week’s 4.2% climb. But the gap between prices and fundamentals is widening fast, with some market watchers warning about overheating sectors.

Housing stocks rallied too, riding on hopes of more support from Beijing. China Vanke Co. rose to a six-month high, leading a 3% gain in a property sector index, the biggest one-day MOVE in over a month. Shares of Sunac China Holdings Ltd. and Longfor Group Holdings Ltd. also jumped sharply. In Hong Kong trading, Vanke gained as much as 16%, and Sunac soared up to 13%.

KEY Difference Wire helps crypto brands break through and dominate headlines fast