China's currency hit its strongest level this year after the PBOC guided it sharply up Monday against a wave of uncertain global financial markets.

The yuan hit a 2016 high after the central bank set its official midpoint rate sharply stronger against the dollar and the central bank governor tried to bolster the currency.

The PBOC set the yuan at 6.5118 per dollar prior to the market open on Monday, up from 6.5314 on February 5, the final fix before the week-long Lunar New Year holiday. After opening stronger against the u.s. dollar, the yuan traded as much 1.2% higher than the previous close, the largest such move since 2005.

It is up to the central bank to set a daily midpoint, or reference rate, and this allows the yuan to trade 2 percent above or below this point. At 0.3 percent higher, Monday's midpoint fix versus the previous fix was the biggest change since Nov. 2nd when the PBOC put the midpoint 0.5 percent higher.

According to analysts from Scotiabank, “the daily reference rate will not be completely determined by the market given its marked spillover effects,” noting that “a string of surging [yuan] fixings could fuel market fears over competitive devaluation.”

Chinese Stocks Drop

Meanwhile, stocks in China fell Monday, making up for losses in markets around the world last week as the mainland reopened following the Lunar New Year holiday.

The Shanghai Composite Index traded down 2.8%, just barely above the 2583 level that would mark a loss of 50% for the benchmark since its recent high last June. Shares in the smaller Shenzhen market were off 3.3%.