China yuan rally pauses after PBOC raises FX reserve ratio
China's onshore yuan weakens after a record winning run as the People's Bank of China acts to temper the currency's advance. The move interrupts 13 straight sessions of gains, the longest streak since 1996, and also weighs on offshore trading.
Highlights
- The onshore yuan fell as much as 0.4% to 6.6728 per dollar, ending a 13-day winning streak after the PBOC raised the FX reserve ratio.
- PBOC's move requiring banks to hold more foreign currencies in reserve reduced dollar supply and eased appreciation pressure on both onshore and offshore yuan.
- The policy shift signals authorities' intent to slow yuan appreciation, tightening foreign currency liquidity and moderating near-term yuan gain expectations.
PBOC move curbs yuan momentum
As reported by Bloomberg, the onshore yuan falls as much as 0.4% to 6.6728 per dollar, ending its longest winning streak in three decades after the People's Bank of China asks banks to hold more foreign currencies in reserve.The central bank's step forces lenders to lock up more foreign exchange, a move that reduces the supply of dollars in the market and eases appreciation pressure on the yuan. The offshore yuan also drops as much as 0.3%, showing the policy action is affecting sentiment across both trading venues.
Currency market impact in China
The interrupted rally follows 13 straight days of gains for the onshore yuan, the longest stretch since 1996, based on data compiled by Bloomberg. The reversal signals that Chinese authorities are seeking to slow the pace of appreciation even as the currency has been strengthening sharply.For banks and market participants, a higher foreign exchange reserve ratio tightens the handling of foreign currency liquidity and can moderate expectations for further near-term yuan gains. That makes the PBOC's action relevant for broader financial conditions in China's currency market.
In our earlier coverage of China’s third-quarter growth outlook and late-September stimulus measures, we noted that economists expected only a modest pickup in GDP as weak consumption, private investment and property-sector stress persisted. The article highlighted targeted rate cuts, mortgage subsidies and additional debt quotas as part of Beijing’s efforts to support growth, while stronger exports and factory output helped offset soft domestic demand.
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