The dollar-to yuan exchange rate rose on Monday and traded slightly above the psychologically important level of 7. The pair is supported by expectations of Fed policy tightening this week.

The People’s Bank of China set the median rate at 6.9396 before market opening, versus 6.9305 on Friday. This time, as it has all along since August, the central bank set the median rate of its currency higher than markets expected to curb its weakening.

According to Maybank analysts, the higher current yuan rate could be a measure to offset the effects of the injection of funds into the financial system.

On Monday, the People’s Bank of China injected 12 billion yuan into short-term lending programs to meet increased demand for liquidity toward the end of the quarter and also lowered its 14-day repo rate. Increased liquidity injections and lower rates are naturally putting pressure on the yuan, analysts said.

On the continental market, the dollar to yuan rate opened at 6.9900 and was trading at 7.0080 at the time of writing. The dollar/offshore yuan pair was trading at 7.0128.

According to traders, the yuan remains under pressure ahead of key central bank meetings scheduled for this week. Market participants expect the Fed and the Bank of England to raise interest rates.

China, like Japan, is not tightening monetary policy to curb inflation, unlike many other countries. Beijing has focused on supporting the economy, and this divergence in the trajectory of funding conditions is putting pressure on the yuan.

Earlier we reported that the dollar is appreciating against most major currencies.