China’s central bank alerts against yuan speculation

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The People’s Bank of China alerted on Wednesday against betting on the yuan, after its rapid drop against the U.S. dollar this week.

“Do not bet on a one-sided appreciation or deprecation of the renminbi exchange rate,” the central bank stated in a Chinese statement on its website late Wednesday, according to a CNBC translation . This is according to a readout of a speech by vice governor Liu Guoqiang at a video conference meeting on foreign exchange that day.

The renminbi, or the yuan, crossed the 7.2 level against the dollar on Wednesday, declining to its weakest since 2008. The U.S. dollar index, which tracks the dollar against major global currencies, has jumped to two-decade highs as the U.S. Federal Reserve aggressively increased interest rates this year.

The PBOC’s statement, with its requirement for banks to affirm stability in the foreign exchange market, is “verbal guidance against the recent rapid depreciation of the currency,” Goldman Sachs analyst Maggie Wei and a team noted .However, the yuan’s crossing of the 7.2 mark “suggests Chinese policymakers are not necessarily defending a particular level of the exchange rate,” the report added. “The statement from the PBOC might slow the pace of CNY depreciation on the margin.”

The onshore-traded yuan dropped against the dollar by 1.9 percent so far this week, according to Wind Information.

The Chinese central bank has other ways to support the yuan this month, including reducing the amount of foreign currency banks need to keep.

 

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