CFETS Reweighting and PBoC’s Firmer Yuan Fixes Now

Intro: Why last week mattered for the yuan (CNY)

In the past week Beijing made a set of concrete, measurable moves that directly influenced the renminbi’s exchange rate. Rather than broad commentary, this article focuses on specific actions and data points: the China Foreign Exchange Trade System (CFETS) annual reweighting of the yuan basket, a notably firm daily fixing set by the People’s Bank of China (PBoC), policy signals tolerating gradual appreciation, the e-CNY evolution into deposit-like balances, and a rebound in official factory activity. Each item affects liquidity, anchor rates, or market expectations — and therefore the onshore and offshore yuan exchange rates.

CFETS reweighting: mechanics that shift the daily midpoint

The CFETS reweighting implemented at the start of the year altered the composition of the yuan’s trade-weighted basket. Most notably, the U.S. dollar share fell from 18.903% to 18.307%, while weights for several Asian currencies (including the Hong Kong dollar, Thai baht, and Korean won) increased. The Korean won overtook the Japanese yen as a top component.

Why this matters for the CNY/USD rate

The CFETS basket is used to help guide the PBoC’s daily midpoint (fixing). Reducing the dollar’s weight lowers the direct influence of USD moves on the onshore midpoint calculation. That can make the official fixing mechanically a touch less sensitive to overnight dollar strength — an adjustment that can dampen one source of downward pressure on the onshore CNY when the dollar rallies.

Practical impact

Think of the CFETS reweighting as changing the lens through which the PBoC views external exchange-rate pressures. It is a technical change rather than an outright depreciation or appreciation. Still, because the midpoint guides bank quotations and large corporate hedges, the reweighting can reduce short-term volatility and slightly favor a firmer onshore yuan when regional currencies strengthen relative to the dollar.

PBoC’s daily fixing: the strongest midpoint since October

On December 29 the PBoC set the onshore daily fixing at 7.0331 CNY per USD — the firmest official midpoint since early October 2024. This is a concrete, observable intervention point that directly anchors onshore quotations for the trading day.

What a firmer fixing signals

A stronger midpoint can indicate two things simultaneously: (1) the central bank is comfortable allowing or supporting renminbi appreciation; and (2) there may be operational willingness to manage excessive depreciation. For traders, a firmer fixing reduces the immediate incentive to sell onshore CNY and can pull the offshore CNH tighter to the onshore rate.

Policy stance: tolerance for gradual appreciation

Recent commentary and actions suggest Beijing is tolerating modest renminbi strength rather than defending a weaker rate. That shift is tactical — designed to reflect improved trade flows and to reduce external criticism about competitive devaluation. A tolerance for appreciation alters investor expectations: if authorities accept a stronger yuan, capital flows and speculative positions will adjust accordingly, supporting the currency.

e-CNY moves and liquidity implications

From January 1 commercial banks began paying interest on e-CNY wallet balances, and these balances are now covered by deposit insurance and count toward reserve requirements. Converting the central bank digital currency into a deposit-like instrument changes domestic liquidity dynamics.

Transmission to the FX market

Interest-bearing e-CNY balances can shift household and corporate cash allocations — potentially raising domestic savings held inside the regulated banking system and altering demand for foreign currency assets. Over time, that may reduce outward portfolio flows or FX conversions, easing depreciation pressure on the yuan.

Real economy data: PMI rebound and near-term sentiment

China’s official manufacturing PMI returned to expansion at 50.1 in December after months of contraction. While partially driven by seasonal pre–Lunar New Year restocking, the rebound improves sentiment. Stronger activity supports export receipts and corporate FX inflows — a tangible channel for bolstering the onshore yuan.

Conclusion: Near-term outlook for the onshore and offshore yuan

Last week’s developments are concrete steps that collectively lean toward a firmer renminbi. The CFETS reweighting changes the technical benchmark for the PBoC’s midpoint; the stronger daily fixing shows operational willingness to support appreciation; the e-CNY changes adjust domestic liquidity and deposit behaviour; and the PMI uptick improves FX receipts through trade. For traders and corporate treasurers, these are not speculative hints — they are policy and data signals that can be priced into onshore (CNY) and offshore (CNH) quotes today.

Expect volatility around macro releases and offshore flows, but the recent sequence of measurable actions and data points creates a modestly stronger baseline for the yuan in the near term.