SHANGHAI: China’s yuan rose to its strongest level in nearly 16 months on Friday on bets that Beijing will unveil fresh economic stimulus following a jumbo US rate cut, though gains were capped by dollar buying from Chinese state banks.

The onshore yuan strengthened to as much as 7.0420 per dollar, the firmest level since May 24, 2023, on track for a six-session rising streak.

Although China kept benchmark lending rates steady on Friday, confounding expectations for a cut, market watchers believe more support measures will be rolled out soon to prop up the ailing Chinese economy, with the Federal Reserve’s easing path offering Beijing leeway to loosen policy without unduly hurting the yuan.

The Chinese currency has gained about 3% since late July, recouping first-half losses, as the dollar had plunged on US rate-reduction expectations. The Fed cut rates by a larger than usual 50-basis-points on Wednesday.

“I still expect PBOC to cut rates in the coming months, as it is necessary to address the deflationary pressure in the economy,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

Lower Chinese rates could weigh on the yuan, but many believe Beijing’s cuts would be milder than US moves, and the negative impact would be offset by a potentially stronger economy if Beijing unveils bigger stimulus.