The offshore yuan rose to around 6.9 per dollar on Friday, recouping some of the previous session’s losses as market sentiment improved on China’s efforts to expand the currency’s role in international markets. Demand for yuan financing has been supported by Beijing’s low interest-rate environment, where persistent deflation has kept borrowing costs subdued. Moreover, demand has been boosted by investors diversifying beyond the greenback, the PBoC’s recent cross-border financing measures, and economists’ calls for looser capital controls to enhance the yuan’s international appeal. Separately, China’s central government has proposed a defense budget of CNY 1.91 trillion for fiscal year 2026, a 7% growth from the previous year. If approved, it would mark the 11th straight year of single-digit defense spending growth and the smallest gain since 2021. Despite Friday’s rebound, the yuan is set for a weekly decline as the US dollar strengthens on safe-haven demand amid Middle East tensions.
