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(Bloomberg) -- A stronger yuan is giving China much-needed relief after the nation’s central bank spent the past few months effectively pegging its currency to the dollar.

The onshore yuan strengthened to a three-month high of about 7.1774 against a soft greenback on Monday, almost erasing its discount to the daily reference rate set by the People’s Bank of China. The currency was trading near the weak end of the 2% band less than a month ago.

China’s currency has been among the worst performers in Asia this year, prompting the PBOC to dig deep into its toolbox to punish yuan bears. The authority has kept such a tight range on the reference rate — its favorite tool for guiding the currency — that a gauge of its swings recently collapsed to levels last seen in 2010. 

The pessimism toward the nation’s assets has begun to recede as wagers on rate cuts from big central banks next year take hold and after last week’s meeting between President Xi Jinping and US counterpart Joe Biden was seen as reducing tensions between the two nations. 

“The yuan is likely past the turning point versus the dollar,” said Fiona Lim, a senior currency strategist at Maybank in Singapore. 

The offshore yuan advanced 0.5% to 7.1815 per dollar as of 12:58 p.m. local time. The Bloomberg Asia Dollar Index also climbed for a fifth day, set for the longest run since December 2022. 

The yuan also rose after the PBOC on Monday raised its daily reference rate for the currency to 7.1612 per dollar, the strongest level since August. The fixing was 0.2% stronger than the previous day’s level. 

“Now that the dollar tide shows signs of turning, the fixing signals policymakers may want is for the yuan to adjust to reflect market developments,” said Christopher Wong, strategist at Overseas Chinese Banking. 

Other Asian currencies also rose, led by the South Korean won, as comments from Federal Reserve officials strengthened bets for the US central bank to cut rates next year. Taiwan’s dollar gained as greenback weakness eclipsed election uncertainty.

--With assistance from Qizi Sun.