China Begins to Intervene to Avoid the Fall of the Yuan!

<p>&nbsp;China's central bank boosted support for the slumping yuan on Tuesday by setting a stronger-than-expected daily reference rate.</p><p><br /></p><p>The yuan has fallen around 4% against the US dollar in two months as weak consumer confidence and a slowdown in the property market have sapped momentum from the post-Covid-19 recovery.</p><p><br /></p><p>In the Asian session, the People's Bank of China (PBOC) has set the USD/CNY central rate at 7.2098 (compared to estimates at 7.2194).</p><p><br /></p><p>Analysts said the fixing was a 'strong signal' that the central bank saw recent interest rate cuts as excessive and that it was trying to contain its impact on the yuan.</p><p><br /></p><p><br /></p><p>The move managed to push the yuan higher in the Asian session, before paring back those gains to trade around 7.2138 in the early European session.</p><p><br /></p><p>In addition, local banks reportedly also intervened by selling US dollars to buy yuan in the offshore spot market when it approached the critical level of 7.25 against the dollar previously.</p><p><br /></p><p>The PBOC has other tools it can use to stem losses in the currency, such as reducing the reserve requirement ratio for foreign currency deposits and increasing costs for traders looking to depreciate the yuan.</p><p><br /></p><p>In this context, state-owned banks are seen selling dollars to support the yuan currency.</p>