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PBOC Moves to Stabilize Yuan With Fixing After Dollar Rally - BLOOMBERG
(Bloomberg) -- China’s central bank stepped in to stabilize the yuan with its daily reference rate, after the currency dropped to a two-month low in response to the dollar’s surge.
The People’s Bank of China set the yuan’s reference rate around 7.15 per dollar on Thursday, diverging from analyst estimates by the most since late April. The move signals a show of support for the currency which fell after the dollar rallied to its strongest level in two months.
The central bank is renewing its support for the currency as the dollar’s rise gains momentum following trade deals favoring the US and as the Federal Reserve signals patience on rate cuts. The PBOC had largely refrained from boosting the yuan in May and June as the currency was on a rising trajectory.
The fixing “will help to limit yuan weakness today,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. “Authorities do not want too much volatility in the currency” and are opting to cap the fix around 7.15 despite the strong dollar rally.
The offshore yuan gained 0.2% to 7.1993 per dollar on Thursday, after falling as low as 7.2146 Wednesday, the weakest since early June. The yuan, along with the Singapore dollar, remained resilient on Thursday, while other regional peers fell under the weight of the greenback’s overnight gains.
Monetary authorities in Indonesia and Hong Kong also stepped into the market to defend their respective currencies on Thursday.
For the PBOC, defending the yuan against sharp depreciation remains paramount as it negotiates a trade deal with the US. China’s central bank official said earlier this month that the nation didn’t seek any competitive edge from yuan depreciation.
The recent revival of the greenback, which has already triggered hedge funds to unwind short dollar bets, is set to test the confidence of yuan bulls. A few Wall Street names including Morgan Stanley, UBS Global Wealth Management and Deutsche Bank AG had forecast the yuan would climb 7.1 or lower in their research notes this month.
Angst over US tariffs has added to the dollar’s strength and dragged down currencies including the euro and Indian rupee. That’s before Bloomberg’s dollar gauge jumped on Wednesday as Fed Chair Jerome Powell said that there is no decision on a September move and traders dialed back bets on rate cuts this year.
Story continues
Dollar losing allure for Chinese traders creates runway for yuan
Bloomberg News Updated 11 July 2025In this article:
GS(Bloomberg) — Chinese traders are pulling back from the dollar, helping ease a shortage that has rattled the banking system and setting the yuan up for further gains.
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The dollar’s premium over the yuan, as reflected in 12-month swap points, has narrowed by 25% since the end of December. Chinese state-owned banks have gradually shifted from wanting dollars to reducing their demand for it, to offering it out, according to traders who declined to be identified as they’re not authorized to speak publicly.
The change underscores how a shift in the dollar’s fortune — it posted a 10.7% slide in the first six months as Donald Trump’s tariff and fiscal policies fueled uncertainty — is easing the pressure on the Chinese yuan. That’s giving Beijing room to ease up on their efforts to support the currency.
“The swap points reflect decreasing demand for the dollar as well as optimism toward the room for yuan to strengthen,” said Hao Zhou, chief economist at Guotai Junan Hong Kong Ltd. Swaps might have also gained support from easing expectations of interest-rate cuts in China amid upbeat economic data, he said.
Foreign-exchange swaps have surged in popularity in China’s tightly controlled financial system. More companies and banks now use them to hedge risks and manage dollar holdings for operations or investment needs.
State-owned banks have been major players, using swaps to defend the yuan — borrowing dollars and selling them back at maturities. At their peak, these swap positions exceeded $100 billion and attracted offshore hedge funds into profitable trades involving Chinese short-term debt.
By borrowing dollars to buy yuan via swaps trades, Chinese banks essentially supported the yuan exchange rate, while foreign investors gave the Chinese banks dollars and got the equivalent in the yuan to invest in the local bond market.
Chinese state-owned banks had been cutting their greenback borrowings via one-year swaps since the second quarter, according to traders. They’re now offering short-term greenback via swaps, and that may also dampen foreign appetite for banks’ negotiable certificate of deposits.
From a market pricing perspective, swap points tend to shrink when the interest rate outlook between the US and China starts to align. That possibility has grown stronger, with markets anticipating a Federal Reserve rate cut in September and China’s recent economic data exceeding expectations — strengthening the belief the People’s Bank of China (3988.HK) can afford to delay further easing.
Story continuesChina's central bank asks financial institutions about dollar weakness: Source
Reuters 7 July 2025
