China’s major state-owned banks were reportedly engaged in the sale of U.S. dollars in the onshore foreign exchange market for the second consecutive day, aiming to bolster the yuan. This move followed Moody’s downgrade of China’s government credit ratings from stable to negative, putting renewed pressure on the yuan’s value.
To counteract potential depreciation, state banks aggressively purchased yuan on Tuesday, intensifying their dollar selling after Moody’s announcement. While state banks intervened again on Wednesday, the dollar selling was relatively mild. The yuan’s earlier weakness led domestic exporters to settle their foreign exchange receipts in morning deals, aiding in the currency’s recovery.
Chinese exporters typically convert their foreign exchange receipts into yuan towards year-end for various payments, contributing to seasonal support for the Chinese currency. Despite a volatile year for the yuan, witnessing a 6.14% depreciation to the dollar at one point, recent sentiments suggest a rebound as views emerged that U.S. interest rates may have peaked.
In November, the yuan experienced a notable 2.55% strengthening, marking its best month in 2023. However, the overall performance for the year still indicates a 3.6% decline. State banks, acting on behalf of the central bank, typically engage in currency market activities, but they may also trade on their own behalf, contributing to the complex dynamics of China’s foreign exchange interventions.
Stay informed with our financial updates, stocks, bonds, commodities. Get global & political insights. Follow us & enable notifications for the latest updates.
