The Chinese yuan dipped Thursday, September 24, as the US dollar strengthened on growing expectations of another Federal Reserve rate hike, pulling the currency back from the multi-year highs it had touched earlier in the week ahead of the Trump-Xi summit in Washington.

How the Yuan Has Moved

The offshore yuan had climbed to its strongest level in more than four years earlier in the week, touching around 6.70 per dollar, its firmest since July 2022, as the People's Bank of China (PBOC) set progressively firmer daily fixings for an eighth consecutive trading day — its longest such streak since 2023. A Bloomberg measure tracking the CFETS RMB Index, which weighs the yuan against 25 trading-partner currencies, climbed 1.1% for the week to 103.2, its strongest level since 2022.

Why the Dollar Is Pushing Back

Despite the yuan's underlying strength, the greenback has remained firm after hawkish remarks from Federal Reserve officials reinforced expectations of another interest-rate hike later this year, following the Fed's rate increase earlier this month. The US Dollar Index touched a near two-month high this week as traders priced in nearly 70% odds of another Fed hike at the central bank's next meeting, up sharply from roughly 50% just a week earlier. That dollar strength has come even as the yuan's rally has held, widening the China-US bond yield gap to a record, according to Bloomberg's analysis.

China Managing Its Currency Ahead of the Summit

China's currency management has drawn particular attention heading into the summit: state-owned Chinese banks have reportedly been buying up dollars to slow the pace of the yuan's gains, according to Reuters sources — a sign Beijing is seeking to manage the currency's ascent carefully rather than let it appreciate unchecked, even as the PBOC's daily fixings have consistently pointed the currency higher.

What's on the Table at the Summit

The September 23-25 Trump-Xi meeting is expected to address a wide range of sensitive issues, including artificial intelligence, the Iran conflict, export controls, rare-earth supplies, Taiwan, and bilateral trade relations. US Trade Representative Jamieson Greer said ahead of the summit that the two sides remained divided over the exact terms of a trade truce extension, though he indicated Washington could support a three-to-six-month extension — a range that ultimately landed on the shorter end, with Treasury Secretary Scott Bessent confirming a two-month extension following preliminary talks.

What Remains Unresolved

Even with the truce extension confirmed, negotiations over artificial intelligence cooperation, rare-earth exports, US aircraft purchases, and agricultural goods purchases remain unresolved heading into the leaders' direct talks — meaning the summit itself carries genuine weight for determining whether these outstanding issues move toward resolution or remain points of ongoing friction.

Analyst Expectations for the Yuan

One currency strategist cited in Bloomberg's coverage said the renminbi is "likely to receive further support from the Trump-Xi summit," projecting the offshore yuan would settle around 6.70 per dollar by the end of September, while maintaining a year-end target of 6.65 — suggesting the currency's broader multi-year appreciation trend remains intact even amid this week's near-term pullback against a firming dollar.

China's Domestic Monetary Backdrop

China's central bank kept its one-year loan prime rate (LPR) at 3% and the five-year LPR at 3.5% this week, a decision reflecting policymakers' limited scope for further easing amid the yuan's continued appreciation and tighter monetary policy among major global central banks, including the Fed.

Weak Credit Demand Despite Currency Strength

Notably, the yuan's strength has come even as domestic credit demand remains soft: Chinese banks extended just 60 billion yuan in new loans in August, well below economists' forecast of 400 billion yuan, while the outstanding yuan loan balance grew at a record-low 4.9% year-on-year — a sign that currency appreciation and underlying economic momentum aren't necessarily moving in lockstep right now.

The Bigger Picture

Thursday's yuan pullback illustrates how tightly Asian currency markets remain tethered to the interplay between Fed policy expectations and US-China diplomatic developments — with China's own currency management adding a further layer of complexity as Beijing balances a desire for yuan strength against the risk of moving too fast ahead of a pivotal diplomatic moment. For live currency market data, see Reuters Currencies.