How is the PBOC Reacting to a Weakening Chinese Yuan?

The Chinese Yuan has fallen by over 2.5% against the US dollar after the most recent round of tariff hikes

Arslan Butt•Friday, May 24, 2019•1 min read

As trade tensions between US and China continue to rise, the Chinese Yuan has fallen by over 2.5% against the US dollar after the most recent round of tariff hikes. At the time of writing, USD/CNH is trading at 6.92, just a shade under the 7.00 level.

A weakening currency typically spells trouble for investor confidence, a vital issue for China in times of strained relations with the US. However, the central bank PBOC has not yet stepped in to stop the devaluation of the currency.

Last year, the bank had intervened to keep the yuan price steady by raising the cost of shorting it through hikes in reserve requirements on forwards. State banks also leveraged swaps and sold off dollars to prop up the value of the yuan during this time.

Analysts see this move as China’s way of expressing more confidence in the currency. The PBOC Vice Governor, Liu Guoqjang, remarks, “Nothing has gone wrong, and (we) will not allow anything to go wrong.”

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ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.