THE yuan advanced to a more than 3-1/2-year high against the U.S. dollar yesterday, guided by a much firmer central bank fixing and heavy corporate demand ahead of the Lunar New Year holiday.

Investors also anxiously await the Federal Reserve’s policy meeting later this week, at which the U.S. central bank could reveal some comments on its plans to remove monetary stimulus this year.

The Fed is expected to raise rates as early as March, with several more increases seen over the year.

Prior to market opening, the People’s Bank of China set the midpoint at 6.3411 yuan per dollar, 81 pips, or 0.13 percent, stronger than the previous fix. It was the firmest since May 14, 2018.

In the spot market, the onshore yuan opened at 6.3359 per dollar and strengthened to a high of 6.3304, the loftiest level since May 14, 2018.

Traders and market analysts said corporate yuan demand is typically heavier just before the week-long Lunar New Year holiday, which starts Jan. 31 this year, as companies make payments such as employee bonuses.

“The yuan will be affected by the monetary policy divergence between China and the United States and the seasonal forex settlement this week,” analysts at CICC said in a note.

The Chinese investment bank expects the yuan to fluctuate around 6.34 per dollar this week. (SD-Agencies)