SHANGHAI/SINGAPORE: China’s yuan rebounded from a near six-month low against the dollar on Friday, as some major state-owned banks sold the US currency to prevent the yuan from sinking further.

Sources told Reuters that state banks were seen selling dollars in the spot market from Thursday and into Friday, and such dollar selling appeared to slow the pace of yuan declines rather than forcefully capping the currency at any particular level.

With the state bank support, the yuan was changing hands at 7.0610 at midday, 185 pips firmer than the previous late session close.

It hit a low of 7.0803 on Thursday, the weakest since Dec. 1, 2022.

Offshore yuan also followed suit to trade at 7.0746 per dollar around midday, compared with the previous close of 7.09.

“The state banks appeared to only control the pace of yuan weakening,” said a trader at a foreign bank, expecting the yuan could continue to creep lower in the near term.

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Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.076 per dollar, 231 pips or 0.33% weaker than the previous fix of 7.0529.

“China’s post-reopening recovery is showing signs of waning and this has exerted downside pressure on CNY,” said Tommy Wu, senior China economist at Commerzbank.

“If the consequence of looser monetary conditions is a weaker CNY, the authorities may opt for the direct route of accommodating a weaker CNY.

As such, a weaker CNY may be the preferred means to engineer and foster looser monetary conditions rather than through significant interest rate cuts,“ he added.

A raft of April data pointed to an economy losing momentum after the initial post-COVID bounce and lifted hopes of more monetary easing measures.