Home ForexArticles EXCLUSIVE-China takes steps to support yuan as stock markets fall

EXCLUSIVE-China takes steps to support yuan as stock markets fall

by SuperiorInvest

© Reuters. FILE PHOTO: Woman holds Chinese yuan bills in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration

SHANGHAI/BEIJING (Reuters) – China’s major state banks moved to support the yuan on Monday, tightening liquidity in the offshore currency market while actively selling U.S. dollars at home as stocks fell, four sources with knowledge of the matter said. knowledge of the matter.

The goal was to prevent the yuan from falling too quickly as China’s A-shares plunged, one of the people said, with the benchmark index on Monday posting its biggest one-day drop since April 2022, down 2.7 %. [.SS]

“It is a clear policy signal to stabilize the yuan and counter negative market sentiment on stocks,” said Gary Ng, senior Asia Pacific economist at Natixis.

Foreign funds have sold about $1.6 billion in Chinese stocks so far this year, and investor confidence has been shaken by signs of a slowdown in the world’s second-largest economy.

Offshore yuan overnight forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions.

The increase came as state-owned banks in the offshore market reduced lending to their peers, one of the sources said.

The move effectively restricted liquidity and raised the cost of shorting the currency.

Meanwhile, state banks were also selling dollars in the local spot foreign exchange market to avoid rapid declines in the yuan, three sources said.

Dollar spot sales turned aggressive to defend the 7.2 per dollar level, one of them said.

All sources spoke on condition of anonymity as they are not allowed to publicly discuss market conditions.

State banks often act on behalf of China’s central bank in the foreign exchange market, but may also trade on their own behalf or execute client orders.

The latter was trading at 7.1963 per dollar, down almost 1.4% so far this year, while its offshore counterpart was last trading at 7.2047.

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