China Steps Up Yuan Support Amid Dollar Rally Concerns
China is reinforcing its yuan support as the dollar’s strength raises concerns for the currency and its Asian counterparts
China, Yuan, Dollar, PBOC, Currency, Economy
Beijing: So, China is really tightening its grip on the yuan lately. They set the daily reference rate at 7.1887 per dollar, which is way stronger than what traders expected. This move shows they’re serious about keeping the yuan from dropping too much.
The dollar has been on a bit of a roll, thanks to rising Treasury yields and some solid US economic news. This has pushed the offshore yuan closer to its weakest point ever, and other Asian currencies like the won and baht are feeling the heat too.
Alvin T. Tan from RBC Capital Markets mentioned that the People’s Bank of China (PBOC) is really trying to back the yuan. They’re not just using the daily fixes but also keeping offshore funding rates super high to help out.
After the fixing, the yuan was pretty stable offshore, hanging around 7.34 per dollar. For a while now, China has been juggling between easing monetary policy to boost growth and supporting the yuan to prevent big capital outflows.
But it’s tough! There’s a big interest-rate gap with the US, potential tariff hikes, and a slow local recovery putting pressure on the yuan, even with the PBOC’s efforts.
The central bank is using the fixing to limit how much the onshore yuan can move, trying to stop losses. This week, borrowing costs for the yuan in Hong Kong shot up, hinting that the PBOC might use other methods to curb negative bets by tightening offshore liquidity.
In a clear sign they’re worried, the PBOC promised to crack down on any market disruptions and prevent one-sided bets on the currency. Local media even reported that they’re planning to ramp up bill auctions in Hong Kong.
Wee Khoon Chong from BNY thinks there’s still a risk of the dollar-yuan rate going up, and it might not be long before the PBOC has to adjust the fixings higher.
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