THE People’s Bank of China (PBOC) pulled back its daily support for the yuan to the lowest in a year on Wednesday (Aug 7), at least by one measure.
The gap between market estimates and the daily reference rate – a gauge of official support for the managed currency – has now almost vanished, having been close to record levels for much of the last few months. The yuan has pared much of this year’s losses against the US dollar in recent days amid broad weakness in the greenback in the region and an unwind of leveraged short positions.
The pullback in support suggests an opportunity to the central bank to embark on further monetary stimulus to boost a sluggish economy. China had been gradually weakening the so-called fixing amid calls from former officials to relax its control over the yuan in order to open room for more easing.
“The recent moves do offer a good opportunity for the PBOC to close the spot-fix gap and we seem to be moving towards that,” said Eddie Cheung, senior EM strategist at Credit Agricole CIB, referring to a weaker US dollar and strength in the neighbouring yen.
The PBOC set the fixing at 7.1386 on Wednesday, the lowest since November, while the premium over estimates narrowed to 93 pips, the smallest since July 2023. The reference rate is the level around which the currency is permitted to trade in a 2 per cent range.
The yuan slipped around 0.4 per cent onshore to around 7.18 per US dollar on Wednesday. BLOOMBERG
