SHANGHAI: Despite central bank promises to maintain currency stability and a continuing strengthening bias in the official midpoint fixing, China's yuan fell to a new 16-month low against the dollar in early trading on Monday.
Due to a triple whammy of a generally stronger dollar, declining Chinese yields, and escalating trade tensions with other economies, the yuan broke through the crucial threshold of 7.3 per dollar on Friday for the first time since 2023.
Early trading on Monday saw the onshore yuan drop to its lowest level since September 2023, a low of 7.3277 per dollar.
As of 0221 GMT, its last trade was at 7.3257. Following the downward trend, its offshore counterpart fell as well, reaching a low of 7.3640 per dollar before closing at 7.3522 as of 0221 GMT.
According to currency traders, major state-owned banks tried to slow the rate of yuan declines by selling some dollars on the onshore spot market, but they were unable to counteract the massive corporate dollar purchases.
Two points stronger than the previous fix and 1,159 points stronger than Reuters' estimate of 7.3035, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is permitted to trade in a 2% band, at 7.1876 per dollar prior to market opening.
Since mid-November, the PBOC's midpoint rate has remained above market expectations and on the firmer side of the crucial 7.2 level, which traders and analysts generally take as an indication of growing apprehension over recent yuan declines.
Separately, according to sources close to the central bank, state-owned news outlet Yicai said Monday that China's central bank is anticipated to increase sales of offshore yuan bills in Hong Kong in January, with a magnitude significantly larger than previous issuance.
As yields fall and rate cut bets increase, China's yuan approaches a 14-month low.
The central bank publication Financial News also reaffirmed on Monday that the PBOC has the experience and a wide range of tools necessary to respond to the depreciation of the yuan.
The PBOC stated on Friday that it would lower banks' reserve requirement ratios and interest rates at "an appropriate time" while essentially maintaining the yuan exchange rate at its current level.
In a note, Goldman Sachs economists stated, "In our opinion, these show the PBOC would like to control the pace of yuan depreciation against the dollar and avoid sharp depreciation prior to the US tariff announcement."
They also noted that during the 2018–19 US–China trade war, the yuan saw significant movements primarily following the official announcement of tariffs, and they anticipated that this year's PBOC FX management would follow a similar pattern.
When he assumes office on January 20, US President-elect Donald Trump has promised to impose tariffs on all goods.
Due to a triple whammy of a generally stronger dollar, declining Chinese yields, and escalating trade tensions with other economies, the yuan broke through the crucial threshold of 7.3 per dollar on Friday for the first time since 2023.
Early trading on Monday saw the onshore yuan drop to its lowest level since September 2023, a low of 7.3277 per dollar.
As of 0221 GMT, its last trade was at 7.3257. Following the downward trend, its offshore counterpart fell as well, reaching a low of 7.3640 per dollar before closing at 7.3522 as of 0221 GMT.
According to currency traders, major state-owned banks tried to slow the rate of yuan declines by selling some dollars on the onshore spot market, but they were unable to counteract the massive corporate dollar purchases.
Two points stronger than the previous fix and 1,159 points stronger than Reuters' estimate of 7.3035, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is permitted to trade in a 2% band, at 7.1876 per dollar prior to market opening.
Since mid-November, the PBOC's midpoint rate has remained above market expectations and on the firmer side of the crucial 7.2 level, which traders and analysts generally take as an indication of growing apprehension over recent yuan declines.
Separately, according to sources close to the central bank, state-owned news outlet Yicai said Monday that China's central bank is anticipated to increase sales of offshore yuan bills in Hong Kong in January, with a magnitude significantly larger than previous issuance.
As yields fall and rate cut bets increase, China's yuan approaches a 14-month low.
The central bank publication Financial News also reaffirmed on Monday that the PBOC has the experience and a wide range of tools necessary to respond to the depreciation of the yuan.
The PBOC stated on Friday that it would lower banks' reserve requirement ratios and interest rates at "an appropriate time" while essentially maintaining the yuan exchange rate at its current level.
In a note, Goldman Sachs economists stated, "In our opinion, these show the PBOC would like to control the pace of yuan depreciation against the dollar and avoid sharp depreciation prior to the US tariff announcement."
They also noted that during the 2018–19 US–China trade war, the yuan saw significant movements primarily following the official announcement of tariffs, and they anticipated that this year's PBOC FX management would follow a similar pattern.
When he assumes office on January 20, US President-elect Donald Trump has promised to impose tariffs on all goods.
