As the high-flying yuan/dollar exchange rate approaches 7.25 yuan, which is called a psychological barrier, Chinese authorities and state-owned banks are reportedly intervening in the market through dollar sales and notified exchange rates.
According to Bloomberg News on the 27th, the offshore yuan/dollar exchange rate reached 7.2495 yuan at 9:54 a.m. on the same day, the highest in seven months since the end of November last year.
The regional yuan/dollar exchange rate also showed a similar trend, and the regional yuan/dollar exchange rate rose 0.84% the previous day, the highest increase since February 3 (+0.99%).
The yuan/dollar exchange rate has risen more than 4% this year. Analysts say that China’s slower-than-expected economic recovery after the lifting of “Zero Covid” and the widening interest rate gap between the U.S. and China are affecting it.
Citing multiple anonymous sources, Reuters reported that major Chinese state-owned banks appear to be selling dollars in the offshore spot foreign exchange market, suggesting that the authorities’ intention to slow the yuan’s weakness was reflected.
Reuters explains that it is common for Chinese state-owned banks to intervene in the foreign exchange market on behalf of the central bank, the People’s Bank of China, and that they may also make foreign exchange transactions for customers.
The People’s Bank of China also announced a low-level official exchange rate that exceeded market expectations for two consecutive days.
The People’s Bank of China announced the dollar-yuan transaction standard exchange rate at 7.2098 yuan, up 0.0042 yuan (0.06%) from the previous session. This is a devaluation of the yuan, but it was smaller than the market estimate (7.2194 yuan).
Many foreign exchange traders said they witnessed state-owned banks trying to raise the value of the yuan by selling dollars just before the closing of the domestic market the previous day, adding that the closing exchange rate affects the notified exchange rate the next day.
The regional yuan/dollar exchange rate exceeded 7.32 yuan in early November last year, the highest level since the 2008 global financial crisis.
