China's yuan could strength against the dollar as the Fed struggles to balance growth and inflation, says top Beijing official

• The yuan won't face as much volatility and can strengthen against the dollar, a Chinese official said.
• China's economy is gaining momentum, while US central bank policies could weaken the dollar.

The deputy governor of the People's Bank of China said the yuan will be less volatile now and could even strengthen against the US dollar after diving earlier this year.

On Friday, the yuan hovered at 6.66 per US dollar, rebounding by about 1.1% since mid-May after weakening by roughly 6% in April as China's zero-COVID policies hampered business and economic activities.

"Yuan exchange rates are basically stable with two-way fluctuations," Pan Gongsheng said Thursday, according to the South China Morning Post.

China's economy is now more prepared to handle cross-border capital flows and currency volatility, and economic growth momentum is recovering quickly thanks to government stimulus, he added.

Meanwhile, the US dollar index hit a 20-year high as markets priced in the Federal Reverse's aggressive campaign for raising interest rates to cool prices while still engineering a "soft landing" that doesn't slam the economy.

But the Fed could weaken the dollar as it attempts to avoid a recession amid its inflation battle, Pan said.

"Many market institutions believe it will become more difficult for the Fed to stabilize growth while controlling inflation," Pan said. "There are also growing signs of eurozone tightening. These factors have led to the recent fall in the US dollar exchange rate and also reflected market expectations for the future."