SHANGHAI: China’s yuan advanced further on Wednesday, after breaching the psychologically important 7-per-dollar level for the first time in 2-1/2 years a day earlier, and on track for its biggest annual rise since 2020. The yuan appreciation has accelerated toward the year-end, underpinned by a broadly weaker greenback and heavier seasonal foreign exchange settlements by exporters. Investor sentiment has also improved on fresh signs of economic recovery following an unexpected expansion in factory activity. Nevertheless, authorities continued to show unease over yuan’s rapid gains following the breach of the key level, signalling their discomfort through persistent weaker-than-expected midpoint fixings and verbal warnings in state-run media editorials. The Communist Party’s official People’s Daily newspaper on Wednesday warned of an uncertain trajectory for the yuan going forward. “Market and businesses should maintain a rational perspective,” the newspaper said, citing industry experts. “Many market and policy factors will influence exchange rates in the future, and the yuan’s trajectory remains highly uncertain.” Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.0288 per dollar, its strongest since September 2024 but 343 pips weaker than a Reuters’ estimate of 6.9945. The spot yuan is allowed to trade a maximum of 2% either side of the fixed midpoint each day. The central bank has been setting softer-than-expected guidance since late November, and the gap between the official setting and Reuters’ market-based estimate represented the largest weak-side deviation since data became available in 2022. “The lower (USD/CNY) fixings (are) significant considering USD/CNY spot break and closed below 7.00 yesterday, affirming our view that there is no line in the sand in terms of USD/CNY levels,” said Wee Khoon Chong, APAC macro strategist at BNY. The onshore yuan traded 0.06% higher at 6.9895 per dollar as of 0259 GMT. If it finishes the late night close at the midday level, it would have gained 4.4% to the dollar for the year, snapping three straight years of losses to record the best annual performance since 2020. Its offshore counterpart last fetched 6.9843 per dollar as of 0259 GMT, up about 0.1% in Asian trade. Mainland China’s financial markets will be closed from Thursday for the New Year holiday, and trading will resume next Monday. Many analysts expect yuan strength to extend into 2026, with BofA Global Research anticipating the currency to be at 6.8 per dollar by the fourth quarter of next year. The average forecast of nine investment banks showed the Chinese currency is expected to strengthen to 6.92 per dollar at the end of next year. In 2026, China’s “trade surplus is likely to remain at the 2025 level, resulting in a significant supply of dollars under the current account,” analysts at China Merchants Bank said in a note. “The yuan exchange rate is expected to continue its gradual appreciation trend in 2026.” China’s trade surplus topped $1 trillion for the first time in the first 11 months of this year on the back of resilient exports.