China Takes Steps to Slow Yuan’s Slide as Authorities Grow Uneasy
China has set a stronger-than-expected trading band for its currency and state banks have sold dollars against the yuan, indicating growing discomfort with the currency’s quickening slide. The yuan has fallen about 4% against the dollar in the past two months due to flagging consumer confidence and a sluggish property market. However, on Tuesday, the yuan bounced about 0.4%, its best gain in almost two weeks.
State banks were seen selling dollars to buy yuan in the offshore spot market as the currency approached the psychologically important level of 7.25 per dollar. The banks were also active late on Monday, bidding up the yuan sharply into the onshore close, which influences the central bank’s official yuan midpoint fixing the next day.
The People’s Bank of China (PBOC) set the middle of the trading band even firmer than expected, deviating from forecasting models by the most since May. Analysts believe that these moves indicate official unease at the yuan’s downward momentum, although they may only slow down the decline rather than halt it completely.
“The speed has been too fast for their liking,” said Moh Siong Sim, a currency strategist at Bank of Singapore. The yuan ended Monday at a seven-month low of 7.2425 per dollar and was at 7.2105 in Tuesday afternoon trade.
The pushback from China comes as investors sour on the country, with data showing that China’s rebound is faltering. However, the stuttering recovery has raised expectations of stimulus measures to offset growth worries.
Stocks in Hong Kong and the Australian dollar both bounced sharply on Tuesday in line with the yuan. Analysts believe that the moves to halt the yuan’s slide are not as firm as last year when regulators introduced measures to encourage capital inflows, but they may be enough to slow down selling.
“The implications are that markets are going to be more cautious about pushing the dollar/offshore yuan much, much higher from here,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The yuan’s decline may be curbed if China’s economy or the prospect of further interest rate cuts prevent it from slipping further downhill. Analysts believe that further easing measures are likely in the coming months.
Reporting by Shanghai and Beijing Newsroom, Ankur Banerjee, Tom Westbrook, and Rae Wee in Singapore; Editing by Vidya Ranganathan, Kim Coghill, and Jacqueline Wong
What are the potential implications of state-owned banks selling US dollars to purchase yuan in the offshore spot market
China has taken measures to slow down the depreciation of its currency, the yuan, as authorities express concern over its rapid decline. The country has established a trading band that is stronger than initially anticipated, and state-owned banks have sold US dollars in exchange for yuan. This move demonstrates the growing unease surrounding the yuan’s recent decline. In the past two months, the yuan has weakened by approximately 4% against the US dollar due to declining consumer confidence and a sluggish property market. Nevertheless, on Tuesday, the yuan experienced a modest increase of about 0.4%, marking its most significant gain in nearly two weeks. State-owned banks were observed selling US dollars to purchase yuan in the offshore spot market as the currency approached a psychological threshold.
China’s decision to take measures to slow the decline of the yuan demonstrates their uneasiness about the situation. It will be interesting to see how these steps impact the currency’s value and the global economy as a whole.