(Bloomberg) -- China reaffirmed its support for the yuan after the currency’s slide last week fanned speculation policymakers would allow it to depreciate faster.
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The People’s Bank of China set its daily reference rate stronger than the line of 7.2 per dollar, defying speculation it would weaken the so-called fixing. In addition, a PBOC-backed newspaper said central bank communication had showed a clearer resolve to stabilize the currency. Beijing is planning to sell more bills in Hong Kong, local media Yicai said, a move that may mop up liquidity and boost the yuan.
The PBOC’s pushback quelled bets on further declines after the onshore yuan weakened past 7.3 per dollar on Friday due to a widening yield gap with the US and worsening confidence on China’s economic outlook. Concerns over an escalation of trade frictions during President-elect Donald Trump’s second term have also been weighing on the currency.
“The PBOC squashed doubts that it has dropped its support for the yuan after dollar-yuan weakened past 7.3 last week,” said Alex Loo, a macro strategist at TD Securities in Singapore. The Yicai news report “further reinforces PBOC’s resolve to defend the yuan. Markets may stay more cautious on shorting the yuan aggressively ahead of Donald Trump’s inauguration,” he said.
The PBOC has kept the fixing stronger than 7.2 per dollar to blunt the impact of the greenback’s gains following Trump’s US election victory in November. The daily reference rate, which limits moves in the onshore yuan to 2% on either side, is the PBOC’s most frequently-used tool to manage the currency.
The PBOC said Friday it will strengthen the management of currency trading and crack down on behavior that disrupts the market. The central bank will also aim to prevent the building of one-sided bets and any overshoot in the exchange rate, it said in a statement published after its monetary policy meeting.
State-owned banks were seen selling dollars in the onshore market to meet demand for the dollar on Monday, traders said. However, banks weren’t supporting the yuan at a fixed level, said the traders, who asked not to be named commenting on the currency market.
Bearish Bets
The weak end of the allowed trading band for the yuan based on Monday’s fixing level is 7.3314 per dollar. The currency depreciated to 7.3293 in afternoon trading, a level last seen in September 2023. The decline is a sign investors remain bearish on the currency.