- According to Reuters, Chinese state banks are buying the yuan and selling the dollar.
- This came as China’s central bank lowered the daily dollar-yuan fixing rate to the lowest level in three and a half months.
- However, the yuan gained 2% last week in a recent rally, the highest level in almost four months.
Big banks in China are buying the yuan and selling the dollar in an attempt to support the Chinese currency.
Reuters reported on Tuesday that major state-owned banks helped strengthen the yuan this week by converting it to dollars on the onshore market and selling those dollars on the spot foreign exchange market.
The move also comes after the People’s Bank of China lowered the daily dollar-yuan fixing rate to a three-and-a-half-month low of 7.1406 per dollar on Tuesday.
However, the fact that banks were active in the foreign exchange market this week came as a surprise to sources who spoke to Reuters, given the yuan’s recent rise.
The yuan gained 2% last week to its highest level in almost four months, trading at around 7.13 per dollar. Sales of US dollars by large state-owned banks briefly caused the price of the yuan in the onshore spot market to rise to 7.1296 per dollar.
The yuan’s gains also come as the dollar has weakened since last week amid growing confidence that the Federal Reserve has had enough of interest rate hikes. Still, the Chinese currency has lost more than 3% against the dollar this year.
Chinese banks have frequently sold dollars on the foreign exchange market this year to slow the yuan’s decline. While a strong U.S. dollar is part of the problem, China’s economy also faces problems such as a shrinking real estate sector, shrinking trade and long-term disruptions related to the pandemic.
The economic malaise prompted the PBOC to launch a stimulus package in the form of issuing additional treasury bonds to reduce the debt of local governments in the country.
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