China’s yuan holds early gains based on PBOC statement of intent to keep currency stable

SHANGHAI: China’s yuan held onto most of its gains having opened firmer on Wednesday after the central bank reiterated its commitment to keeping the currency stable, and also helped by a slower decline in industrial firms’ profits.

People’s Bank of China said, in a statement after a quarterly meeting of its monetary policy committee, that it would “resolutely prevent currency overshooting risks and keep the yuan basically stable at reasonable and balanced levels”.

The PBOC’s statement was released prior to the currency market’s open, and helped pull the yuan to the firmer side of 7.3 level against the dollar, analysts said. China’s onshore yuan strengthened roughly 140 pips right after market opened.

Sentiment toward the yuan was also helped by data supporting the view that policy support steps have begun to stabilise parts of the stuttering economy.

While profits at China’s industrial firms extended a double-digit drop for the first eight months of the year, investors noted that pace of declines had eased slightly.

China’s yuan holds steady as PBOC sets aggressive fixing

Prior to the market’s opening, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1717 per US dollar, 10 pips firmer than the previous fix 7.1727.

The spot yuan opened at 7.2985 per dollar and was changing hands at 7.3018 at midday, 107 pips firmer than the previous late session close.

The offshore yuan was trading 43 pips weaker than the onshore spot at 7.3061 per dollar.

Offshore funding remained tight, with the offshore yuan tomorrow-next forwards jumping to a high of 14 points, highest level since May 2022.

Offshore yuan’s overnight Hong Kong Interbank Offered Rate (HIBOR) was still strong, at 4.676%.

Tomorrow-next points for the offshore yuan have turned positive since last Friday, meaning that the offshore yuan is now offering a higher yield than the dollar on a daily rolling basis, said Chang Wei Liang, FX & credit strategist at DBS.

The global dollar index rose to 106.242 from the previous close of 106.231.