(Yicai) Feb. 18 -- The Chinese yuan has been strengthening against the US dollar recently, driven by the growing appeal of Chinese tech stocks amid the boom in artificial intelligence, clear signals from the central bank to maintain stability, a weakening greenback and the fact that trade tariffs have yet to escalate.

Yesterday, the offshore yuan appreciated to as high as 7.2427 against the US dollar. The same day, the central parity rate of the redback was set at 7.1702.

The AI wave has injected confidence into the Chinese stock market, especially in the tech sector. US investment bank Goldman Sachs Group has suggested that the widespread adoption of AI over the next decade could lead to a 2.5 percent annual jump in the overall earnings of Chinese stocks. With an improved growth outlook and potential boost in investor confidence, Chinese stocks are expected to see an increase of between 15 percent and 20 percent in their fair value, potentially attracting over USD200 billion in investment inflows.

The People's Bank of China has not shown any signs of wanting to weaken the yuan. In January, the central bank issued the first batch of central bank bills for 2025, amounting to CNY60 billion (USD8.2 billion), which is the largest single offshore central bank bill issuance in recent years. This month, the PBOC plans to issue the second and third batches for this year, totaling CNY60 billion.

On the first day the Trump tariffs took effect in February, the yuan’s midpoint was strengthened by five points compared to the previous rate, indicating that the onshore yuan could soften to as much as 7.3127. Major Wall Street banks generally believe that as long as trade talks are ongoing, the central bank is unlikely to allow the yuan’s midpoint to break past 7.2.

The recent weakening of the dollar has helped stabilize the yuan. The US dollar index has tumbled nearly 3 percent from its January peak, and the yield on the 10-year US Treasury bond has dropped 35 basis points from its January high, with the US Treasury yield curve flattening further. Meanwhile, global stock markets are performing better than US stocks.

Due to the temporary lack of supportive factors, the dollar index is likely to continue this trend, Jerry Chen, a senior analyst at Gain Capital Holdings, told Yicai.

There have also been scant few details released so far regarding the new US tariffs on Chinese goods. According to Eric Robertsen, global chief investment officer at UK lender Standard Chartered, the Chinese market will have a brief respite.

The Trump administration said on Feb. 13 that it would first focus on countries and regions with the highest trade deficits or imbalances with the US, including China, the European Union and Mexico.

Editor: Kim Taylor