As the Chinese yuan falls to a four-month low, state banks intervene

A crucial barrier was crossed by the Chinese yuan on Friday, sending it to a four-month low versus the US dollar on expectations of monetary easing. This prompted state-owned banks to intervene on behalf of the currency.

Early in trade, the onshore yuan in the spot market dropped to the weak side of the psychologically significant 7.2 per dollar level, reaching a low of 7.24, its lowest since Nov. 17, 2023. By the end of onshore trading, though, those poor levels had vanished from the charts; LSEG Eikon data places the day's low at 7.2303.

Reporters were informed by market sources that state banks intervened to purchase the yuan for US dollars. At the domestic close, the yuan was 281 pip weaker than it had been at the previous late session finish, at 7.2275.

Because they lack the authority to publicly discuss market trades, the sources chose not to reveal their identities.

A weaker Japanese yen and mounting market expectations of additional monetary easing to support the world's second-largest economy have caused the yuan to decline by about 2% in just three months.

According to Carlos Casanova, senior economist for Asia at UBP, the yuan has been negatively impacted by the dollar's strengthening and the sharp decline in the yen and other Asian currencies following the Bank of Japan's removal of its negative interest rate policy.