China’s central bank has set the yuan’s exchange rate at its strongest level against the US dollar in more than three years, as Beijing pushes to internationalise its currency and global confidence in US dollar assets continues to waver.

The People’s Bank of China set the yuan’s midpoint rate at 6.8487 per US dollar on Thursday, the strongest level since April 2023. The fixing rate, used as a reference for daily market trading, was 6.8562 a day earlier.

Analysts expect the Chinese currency to continue appreciating in the months ahead – potentially rising to as high as 6.65 per US dollar by the end of the year – but the upswing could create issues for the country’s vast export sector.

The rise in the yuan comes as investor confidence in US dollar assets continues to fluctuate. The dollar has been under pressure in recent months amid concerns over policy uncertainty in Washington, Federal Reserve independence and America’s long-term fiscal sustainability.

The US dollar index stood at 97.97 on Wednesday, down from 119.61 at the beginning of this year.

While Thursday’s uptick marks a fresh milestone for the yuan, markets were not caught off guard by the move, according to Serena Zhou, a senior China strategist at Mizuho Securities Asia.

“Today’s fixing more reflects an improvement in Asian market sentiment driven by Middle East developments,” she said. “Expectations that the US and Iran may be approaching a peace deal have lifted equities and improved confidence in the yuan.”