In a calculated maneuver to bolster the falling yuan, China’s prominent state-run banks plunged into the offshore spot market, strategically trading their dollars for yuan during early Asian trade hours this Thursday. This inside scoop comes from two individuals closely linked to the matter.
Date: July 20, 2023
Place: New Delhi, India
The objective behind this strategic dollar sell-off by the state banks was to decelerate the dwindling trajectory of the yuan, revealed an inside source.
Alongside this, China’s central bank heralded a loosening of cross-border financing rules this Thursday, signaling a ray of hope for domestic firms eager to tap into overseas markets for funding. This move could provide a breath of fresh air for the yuan, which has been grappling with depreciation pressures.
As a result of these bold moves, the offshore yuan experienced a surge, strengthening over 0.7% to reach a high of 7.1812 per dollar before steadying at 7.1890 as of 0249 GMT.
Meanwhile, the yuan reflected a similar upward rebound in the onshore market, though it is still grappling with a year-to-date loss of around 4% against the dollar. This lands it a spot among the weakest-performing Asian currencies in 2023.
In their effort to curb the local currency’s plunge, state banks exchanged dollars at approximately a rate of 7.25. The yuan, which has taken a nearly 5% blow this year, was seen trading at 7.2483 per dollar, earning it an unflattering position among the poorest-performing Asian currencies.
This marks the third occasion this week that the Chinese state banks have swooped in to staunch the yuan’s weakness. Typically, these state banks operate on behalf of the country’s central bank in the foreign exchange market. However, their trading activities could also be on their own behalf or for their clients.
The People’s Bank of China, earlier in the session, adjusted the daily midpoint fixing stronger than anticipated. Analysts perceive this move as an official attempt to arrest the yuan’s fall.
In other Asian currency news, the Japanese yen hit a seven-month low, depreciating to 144.62 per dollar on Wednesday, a level last seen in November 2022. The depreciation of the yen follows the Bank of Japan’s hints of maintaining its ultra-easy monetary policy, despite other major central banks shifting gears towards tightening.
Simultaneously, the US dollar index, a measure of the currency’s value against six primary counterparts, including the yen, euro, and sterling, rose by 0.22% to 103.20, continuing its 0.46% increase from the previous night.
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Sources- Mint, Reuters, Economic Times