(Yicai) Sept. 18 -- After the US Federal Reserve increased interest rates, the Chinese yuan appreciated against the US dollar, with the exchange rates of both the onshore and offshore yuan breaking through the 6.7 threshold to reach a new high in just over four years.

The onshore yuan reached 6.6853 against the US dollar, and the offshore yuan, which more closely reflects international investor expectations, hit 6.6927 today. Both figures are the strongest since August 2022.

There are two main factors for the strengthening of the yuan, Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, told Yicai. First, market expectations were met after the Fed’s interest rate hike, which led to a rebound and then a decline in the US Dollar Index. Second, the recent adjustments in the yuan central parity rate led the currency to appreciate.

On Sept. 16, the Fed announced it would raise its interest rates by 25 basis points to 3.75 percent to 4 percent, marking the US central bank’s first rate hike since July 2023. On that day, the US Dollar Index rose 0.6 percent to a nearly two-month high, but then dropped 0.1 percent the following day.

The People’s Bank of China increased the yuan central parity rate against the US dollar by 59 basis points to 6.7521 today, bringing this week’s total rise to 222 basis points. The central parity rate benchmarks the interbank foreign exchange market, with daily trading prices fluctuating within a 2 percent range above or below it.

The global exchange rate market has experienced volatility this year due to geopolitical tensions in the Middle East and a shift in the Fed’s monetary policy. However, the yuan has maintained a strong trend, appreciating over 4 percent against the US dollar.

This can be attributed to China's robust exports and stable domestic macroeconomic conditions, which provided solid fundamental support for the yuan exchange rate, Wang explained.

In the short term, the yuan exchange rate is expected to continue on its stable yet strong path. Future assessments will need to closely monitor changes in China’s export growth and the fluctuations in the US Dollar Index driven by adjustments in the Fed's monetary policy, Wang noted.

Editors: Dou Shicong, Futura Costaglione