Yuan news today: In an effort to halt the yuan's depreciation, key state-owned banks in China were reportedly busy this week selling US dollars to buy yuan in both onshore and offshore spot foreign exchange markets, according to sources with direct knowledge of the situation, reported Reuters.
State banks frequently follow instructions from the central bank when the yuan is under pressure, as it is now, even if they can also trade on their own behalf or to carry out customer orders.
"State bank dollar selling has become a new normal to slow the pace of yuan depreciation," said one Shanghai-based trader to Reuters.
This week, during London and New York trading hours, state bank offshore branches were also observed selling dollars, according to two persons with firsthand knowledge of the situation who spoke to Reuters on Thursday.
Such transactions in dollars could restrict offshore yuan declines and stop it from deviating too much from its onshore counterpart.
Since this month, the yuan has fallen by around 2.4% and by 6% since the year's beginning. As of 04:42 GMT, the onshore yuan was trading at 7.3145 per dollar, while the offshore yuan last sold for 7.3400.
Due to China's expanding yield difference with the US, investors' fears about China's sluggish economic development and rising default risks in its real estate and shadow banking sectors have grown recently, which has caused the yuan's depreciation to become more pronounced.
Investors have been dissatisfied with the government's delay in implementing stimulus plans to boost GDP. The People's Bank of China (PBOC) has eased monetary policy in the interim to assist the economy, but the yuan is under increased pressure as a result of the lower interest rates.
According to Reuters report, this week, yield differentials between China and the US widened to their highest in 16 years, as investors speculated that the PBOC would ease policy further after a surprise rate cut this week, even if it puts the yuan under more pressure.
Market watchers, according to Reuters news report, claim that in recent weeks, Chinese authorities have tried to slow the yuan's depreciation by regularly establishing a stronger-than-expected fixing and selling dollars by state banks.
Similar tactic were seen in September 2022, when the PBOC also asked major state-owned banks to be prepared to sell dollars for yuan in offshore markets as it tried to stem the yuan's fall, said Reuters news report.
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