The Chinese yuan climbed to a new 14-month high against the dollar on Monday, adding a new layer of complexity to an already turbulent macro environment for risk assets including cryptocurrencies.
The world’s three largest central banks are now moving in markedly different directions. The Federal Reserve just made an aggressive rate cut, the Bank of Japan is poised to raise rates this week, and China’s PBOC is wielding the strength of the yuan amid a slowing domestic economy. For crypto markets caught in the cross-current of global liquidity flows, the stakes have rarely been higher.
Yuan rises on weak dollar
The onshore yuan rose to 7.0498 per dollar as of 08:30 UTC, the strongest level since October 2024. The currency continued to rise during Monday’s Asian session, strengthening from 7.0508 in early trading.
The move came despite a softer-than-expected forecast from the People’s Bank of China, which set its daily fix at 7.0656 – weaker than market estimates – in an apparent attempt to slow the currency’s appreciation.
Analysts attributed the yuan’s strength mainly to the dollar’s general weakness rather than to domestic factors. Seasonal demand at the end of the year also played a role, as Chinese exporters typically convert a larger share of foreign exchange earnings to meet various payment and administrative requirements.
The yuan is expected to remain near 7.05 until the end of the year, but sees limited room for further appreciation as the PBOC is unlikely to tolerate sharp gains. At the same time, exports remain an important driver of economic growth.
BOJ rate hike threatens to become major as aggressive US Fed cuts increase uncertainty
The yuan’s move comes just days ahead of the Bank of Japan’s Dec. 18-19 policy meeting, where officials are reportedly finalizing a 25 basis point rate hike that would bring the policy rate to 0.75%.
The potential rise has reignited concerns about the unwinding of the yen’s carry trade. In early August, a similar dynamic caused a sharp sell-off in global markets, with Bitcoin plunging more than 15% in a single day as leveraged positions were liquidated.
Market participants will closely monitor BOJ Governor Kazuo Ueda’s comments after the meeting. A dovish tone on future rate hikes could soften the impact on the market.
Last week, the Federal Reserve made its third straight interest rate cut, lowering the Fed Funds rate to 3.50%-3.75%. However, the decision was remarkably aggressive, with the point graph showing only one additional cut in 2026.
Fed Chairman Jerome Powell cited rates as one of the top causes of inflation concerns, while three committee members dissented — the most since September 2019.
Implications of the crypto market
For the cryptocurrency markets, the divergent policies of central banks paint a mixed picture. The weakness of the dollar tends to support Bitcoin and other digital assets as an alternative store of value. However, a potential contraction in liquidity due to the unwinding of carry trades in the yen could offset these gains.
Recent ETF flow data indicates limited buying momentum. On December 12, spot Bitcoin ETFs recorded net inflows of just $49 million, with BlackRock’s IBIT accounting for nearly all of the buying at $51 million. The other eleven ETFs had zero flows or minor outflows.
This marks a significant slowdown from peak daily inflows of more than $500 million in November, raising questions about whether institutional demand can provide sufficient support as macro-driven selling intensifies.
With the BOJ’s mid-week and year-end decision worsening liquidity conditions, crypto traders should brace for increased volatility in the coming sessions.
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