The yuan has depreciated sharply against the dollar over the past few weeks as the dollar strengthened and investors fretted about China’s economic growth.
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The yuan briefly rose to its highest level in more than a year on Wednesday after Beijing unveiled a raft of stimulus measures yesterday to boost a slowing economy.
China’s offshore yuan briefly strengthened to 6.9946 against the U.S. dollar, its highest level since May 2023.
Edmund Goh, abrdn’s head of China fixed income, said, “We believe China’s weak growth and low inflation environment should put some pressure on the yuan in the future.” He pointed out that U.S. interest rates may remain higher than Chinese interest rates in the next 6 to 12 months.
Ben Emmons, founder of FedWatch Advisors, wrote in a note earlier Wednesday that the monetary transmission channel on bank balance sheets is “clogged by the housing glut,” which has led to “a drop in consumer confidence.” crisis”.
The People’s Bank of China uses a variety of interest rates to manage monetary policy.
Emmons added that a rapid appreciation of the yuan could put further deflationary pressure on China’s exports by supporting domestic stocks, which are linked to U.S. and international markets.
BNP Paribas expects the dollar-yuan exchange rate to be capped by expectations for more fiscal support, corporate hedging demand and improving risk appetite.
In a rare high-level press conference on Tuesday, People’s Bank of China Governor Pan Gongsheng announced that the central bank will reduce the amount of cash on hand in banks, namely the deposit reserve ratio (RRR), by 50 basis points. He also said that the central bank will lower the 7-day repurchase rate by 0.2 percentage points.
—CNBC’s Evelyn Cheng contributed to this article.
