Amidst concerns over the yuan’s depreciation, China’s major state-owned banks have been actively selling U.S. dollars to buy yuan in both onshore and offshore spot foreign exchange markets, according to individuals with direct knowledge.
Although state banks frequently trade for their own interests or on behalf of clients, they often operate under directives from the central bank during times when the yuan is under duress.
This recent activity is a response to the yuan’s significant decline, which has seen a drop of roughly 2.4% against the dollar this month and 6% since the beginning of the year.
Factors such as China’s expanding yield differential with the U.S., concerns over China’s economic growth, and increasing default risks have exacerbated the decline. Meanwhile, the People’s Bank of China (PBOC) has been making efforts to prop up the economy, including an unexpected rate cut this week, although these moves further pressurize the yuan.
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