The Chinese yuan has reached its strongest level against the dollar in 16 months.

• Beijing's stimulus measures temporarily boosted China's yuan to its strongest level in over a year.
• The PBOC manages monetary policy by utilizing a range of interest rates, rather than solely concentrating on a single main rate, like the Fed.

On Wednesday, China's yuan reached its strongest level in over a year after Beijing announced stimulus measures to support the slowing economy.

The Chinese offshore yuan briefly strengthened to 6.9946 per dollar, its strongest position since May 2023. Meanwhile, China's onshore yuan is currently trading at 7.0319 against the greenback, also holding at its strongest levels since last May.

Edmund Goh, head of China fixed income at abrdn, stated that the weak growth and low inflation environment in China could put pressure on the RMB in the future. He also pointed out that U.S. interest rates are expected to remain higher than Chinese interest rates over the next six to 12 months.

Banks' balance sheets are "clogged by property overhang," which has resulted in a "crisis" in consumer confidence, according to Ben Emons, founder of Fed Watch Advisors, in a note early Wednesday.

The PBOC uses a variety of rates to manage monetary policy.

The strengthening of the Chinese Yuan could lead to more deflation in China's exports, as it supports the domestic stock market, which is linked to U.S. and international stocks, according to Emons.

Expectations of more fiscal support, corporate hedging needs, and better risk appetite may limit the USD/RMB exchange rate.

On Tuesday, the People's Bank of China's Governor, Pan Gongsheng, announced that the central bank would reduce the reserve requirement ratio (RRR) by 50 basis points and cut the 7-day repo rate by 0.2 percentage points. This was reported by CNBC's Evelyn Cheng.