The mainland yuan fell to its weakest level against the dollar since the 2008 global financial crisis amid a steady rise in the US currency in currency trading and rumors that China is easing support for the local currency.
The domestic yuan weakened to 7.2256 per dollar, a level not seen in 14 years, while the offshore exchange rate fell to a record low in 2010, according to the data. According to a Bloomberg survey, the People’s Bank of China pegged the yuan at 444 points above the median value. The gap was the smallest since September 13, suggesting Beijing may ease its support for the currency as the dollar strengthens and global exchange rates fall.
Fiona Lim, senior currency strategist at Malayan Banking Bhd. in Singapore, said: “Fixing gives market forces more room to manipulate the yuan based on differences in monetary policy and market dynamics. “This does not mean that the PBOC will use other tools to support the yuan. We think this morning’s move could help put the brakes on non-dollar currencies that are already under pressure.
The domestic yuan has fallen more than 4% against the dollar this month and is on track for its biggest annual loss since 1994. The currency is under bearish pressure as the country’s divergence in monetary policy from that of the US prompts outflows. capital. Federal Reserve officials, including St. Louis Fed President James Bullard, pushed Tuesday to raise interest rates to restore price stability. On the other hand, Beijing remains weak amid rising deflation risks as demand falls under the weight of the ongoing housing crisis and Covid restrictions.
The intervention of the PBoC
The PBoC is making efforts to support the yuan, although these steps have had limited results. That set the yuan’s stronger-than-expected 25-straight session, the longest streak since the 2018 Bloomberg survey began. Earlier, it lowered the minimum foreign exchange reserve requirement for banks.
The weakening of the resistance of the NBK on Wednesday may be due to the yuan remaining relatively stable against the currencies of its 24 major trading partners, according to Bloomberg data, shown in real time by the CFETS-RMB index. Some analysts also speculate that China may be less flexible in the depreciation of the yuan, as a weaker currency could boost exports and support a slowing economy.
Other countries try to support against USD
Meanwhile, policymakers in Japan, South Korea and India are strengthening their currency defenses as the dollar’s rally shows little sign of slowing. Nomura Holdings Inc notes suggest that Asian central banks could activate a “second line of defense” such as macroprudential instruments and capital accounts.
Brian Deese, director of the White House National Economic Council, said he does not expect another 1985 agreement between major economies to counter the dollar’s strength. Rajiv De Mello, global macro portfolio manager at GAMA Asset Management in Geneva, said the dollar could see further gains as the US appears unconcerned about currency appreciation. “It actually helps to fight inflation,” he said. New bearish forecasts for the yuan emerged this week. Morgan Stanley predicts a price at the end of the year of about $7.3 per dollar. United Overseas Bank lowered its yuan exchange rate forecast from 7.1 to 7.25 by the middle of next year.
