HONG KONG, Jan 28 (Reuters) - China's yuan touched a new 32-month high against the U.S. dollar on Wednesday after Beijing guided its currency higher as global greenback selling intensified while Chinese exporters' seasonal settlement needs continued.

The yuan strengthened to as much as 6.9449 against the U.S. dollar, the strongest level since May 15, 2023, before easing to trade at 6.9457 as of 0330 GMT.

Its offshore counterpart was little changed and traded at 6.939 yuan per dollar.

The gains followed a sharp drop in the greenback overnight. U.S. President Donald Trump said on Tuesday the value of the dollar was "great" when asked whether he thought it had declined too much. That emboldened sellers and sent the currency plunging to a four-year low.

Prior to the market opening, the People's Bank of China set the yuan's midpoint rate at 6.9755 per dollar, its strongest level since May 17, 2023.

The guidance was more than 100 pips stronger than the previous session, marking the biggest single day change since August, but still 524 pips weaker than a Reuters estimate.

The central bank has been gradually strengthening its daily yuan official guidance but at levels weaker than market projections, suggesting it is allowing some appreciation and discouraging one-way bets on rapid yuan gains, traders and analysts said. 

Markets are broadly expecting the dollar index to weaken in 2026, with many predicting it will drop to new cyclical lows, analysts at China Construction Bank wrote in a note.

"Given that the greenback is unlikely to regain strength in 2026, the renminbi should face much less external pressure going forward," they said, adding that China's equity outperformance will also attract foreign inflows and boost the currency.

The yuan is up 0.7% against the dollar this month following a 4.5% rise in 2025 due to a string of positive factors including a weaker greenback and increased year-end demand from exporters.

Foreign exchange settlement demand is likely to remain elevated ahead of the Lunar New Year holidays, and with most market players betting on further yuan strength, exporters are increasingly adopting a "sell dollars on strength" approach, according to Nanhua Futures.

"This trend will keep pushing the yuan higher against the dollar," they said.

Key onshore vs offshore levels:

* Overnight dollar/yuan swap onshore -4.65 pips vs. offshore-4.65 * Three-month SHIBOR 1.6% vs. 3-month CNH HIBOR 1.8%

LEVELS AT 0329 GMT

INSTRUMENT CURRENT UP/DOWN(-) % CHANGE DAY'S HIGH DAY'S 

vs USD VS. PREVIOUS YR-TO-DATE LOW

CLOSE %

Spot yuan 6.9457  0.12 0.69 6.9449 6.9501

Offshore 6.9391  -0.07 0.54 6.9364 6.9442

yuan spot

(Reporting by Jiaxing Li; Editing by Jamie Freed)