Yuan Softens as PBOC Ends 10-Session Strengthening Streak

China's yuan weakened against the dollar on Wednesday after the central bank set a softer guidance rate for the first time in 11 sessions, signalling a desire to slow the currency's appreciation amid mounting trade tensions with Europe.

The onshore yuan traded at 6.7050 around midday, about 0.07% weaker than the previous close. Before the market opened, the People's Bank of China fixed the midpoint at 6.7468, ending a 10-session strengthening run. The guidance rate came in 497 pips weaker than market estimates, continuing a pattern that reflects official preference for more gradual currency gains.

The yuan had risen steadily ahead of this week's meeting between US President Donald Trump and Chinese leader Xi Jinping. Analysts said the PBOC is wary of the currency appreciating too quickly.

"China's latest extraordinary export wave is showing signs of cresting," said Andrew Baston, director of China research at Gavekal Dragonomics. He noted the central bank already appears more cautious about the pace of appreciation it will permit.

The dollar index advanced for a third day, hovering near an eight-week high.

Oxford Economics described the planned Washington meeting as a sign the US-China relationship is becoming more predictable. While sensitive issues such as Taiwan may arise, the main focus is whether the two leaders will signal an extension of a trade truce agreed last year that averted a major shock to the global economy.

Meanwhile, trade friction between China and Europe is intensifying. The European Central Bank said on Tuesday that China's industrial transformation is squeezing European firms out of global markets, with German companies among the hardest hit. Some European auto executives and politicians have called for local content rules and expanded tariffs covering plug-in hybrid vehicles from China.

"Europe is facing increasing growth challenges from China's global competitiveness," Fitch said in a report. The rating agency cut its 2026 growth forecast for China by 0.1 percentage point to 4.5%, citing rising economic imbalances. It expects only moderate yuan appreciation in 2027 and 2028 despite China's strong external position, as the central bank continues to lean against appreciation to avoid large swings in the dollar exchange rate.

Baston said that as China heads into 2027, it is very likely to see a combination of nominal currency appreciation and slowing headline export growth.