China’s yuan bounces from 14-year low after PBOC verbal warning
SHANGHAI – China’s yuan bounced on Thursday from a 14–year low against the dollar hit in the previous session, snapping eight straight days of losses, after the central bank warned against speculative trading and heavy one-way bets on the currency.
The People’s Bank of China (PBOC) said on Wednesday that stabilizing the foreign exchange market is the top priority, and reiterated that the yuan has a solid basis to be basically stable.
The statement “illustrated PBOC‘s further concerns on the rapid depreciation of the currency … (though) the PBOC would not defend a particular level of the exchange rate especially given the depreciation was driven by continued appreciation of the broad USD,” analysts at Goldman Sachs said in a note.
Prior to the market opening, the PBOC set the midpoint rate at 7.1102 per dollar, 5 pips firmer than the previous fix of 7.1107.
In the spot market, the onshore yuan opened at 7.1500 per dollar and was changing hands at 7.1903 at midday, 117 pips or 0.16 percent firmer than the previous late session close.
The yuan hit a low of 7.2521 per dollar on Wednesday, the weakest level since the global financial crisis of 2008.
Its offshore yuan also rebounded from its lowest level on record hit a day earlier to trade at 7.192 per dollar by midday.
Currency traders said a retreat in dollar index, along with the PBOC‘s verbal warnings, helped lift the yuan in morning deals.
The rare strong tone of the verbal warning discouraged many investors from testing new lows in the yuan, said a trader at a foreign bank.
Separately, the state-owned Securities Times said in a front-page commentary on Thursday that the yuan is unlikely to continue depreciating rapidly.
Market participants usually view such official remarks and state media commentaries as a sign that authorities are growing uncomfortable with rapid currency movements.
But some analysts said as long as the Federal Reserve continues to raise interest rates aggressively to tame high inflation, the yuan could still face pressure.
“We expect upward pressure on USD/CNY to persist amid aggressive Fed hikes,” analysts
“Even though the PBOC will continue to pace the rise in USD/CNY, we expect upward pressure to take the pair to 7.20 by early 2023.”
