Yuan falls to 4-month low

Expectations of Chinese policy easing and weaker Asian currencies have pushed the yuan down against the US dollar.

On the Chinese market, the yuan price this afternoon dropped to 7.24 CNY per USD, the lowest since November 2023. This level broke the important psychological threshold of 7.2 yuan per USD.

The yuan price on the foreign exchange market also fell to a four-month low, at 7.27 CNY per USD.

Reuters quoted sources familiar with the situation as saying that Chinese state-owned banks then intervened, selling dollars to buy the local currency. The Chinese currency is now at 7.23 yuan to the dollar.

USD/CNY exchange rate developments over the past year. Chart: Reuters

The currency has lost more than 2% of its value against the US dollar in three months. The yuan has come under pressure as markets increasingly expect China to loosen its monetary policy further to stimulate the economy .

Carlos Casanova, chief economist for Asia at Swiss bank UBP, said the strengthening of the US dollar, and the depreciation of the yen and many other currencies when the Bank of Japan ended negative interest rates, had put pressure on the yuan.

The People's Bank of China (PBOC) set its reference rate at 7.1 yuan per dollar this morning, weaker than yesterday. The currency has been trading within a 2% range. Investors say the PBOC has been setting the yuan's value stronger than market expectations for months.

Investors said the yuan weakened on rising easing expectations, after a PBOC official signaled on March 21 that there was still room to cut the reserve requirement ratio (RRR). Ju Wang, a foreign exchange strategist at BNP Paribas, said the PBOC’s comments on easing could send the Chinese currency to 7.3 yuan per dollar.

Today's developments also put pressure on the Chinese stock market. The Shanghai Composite Index closed down 1% on March 22. "A weaker yuan will make it difficult for stocks to rally, as many people will diversify their investments into USD," Casanova explained.

Ha Thu (according to Reuters)

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