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China’s yuan rebounds from 2-year low on firmer-than-expected guidance

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SHANGHAI — China’s yuan rebounded on

Thursday from a two-year low against the dollar as official

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guidance was set at a firmer than expected level.

Market participants said the firmer-than-expected guidance

could be a sign that authorities are becoming increasingly

uncomfortable with rapid losses in the yuan, which has fallen

about 1.6% against the dollar so far in August.

Prior to the market opening, the People’s Bank of China

(PBOC) set the midpoint rate at 6.8536 per dollar.

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That was 148 pips or 0.22% weaker than the previous fix 6.8388

and the lowest since Aug. 31, 2020.

But analysts and traders said the official midpoint failed

to come in as weak as they had projected, and Thursday’s

guidance rate was 110 pips firmer than Reuters’ estimate of


“The midpoint was way beyond expectations, my feeling is

that the central bank has a firm attitude in defending the

currency,” said a trader at a Chinese bank.

The firmer-than-expected midpoint lifted the spot market

higher. The onshore yuan rebounded from a two-year

low of 6.8704 hit a day earlier to trade at 6.8522 by midday, 57

pips firmer than the previous late session close.

Its offshore counterpart also followed suit,

bouncing from two-year lows to hit 6.8588 per dollar at noon.

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Several currency traders said the unexpectedly strong

midpoint on Thursday could be the PBOC’s pre-emptive move to

rein in yuan weakness ahead of the annual central bank gathering

in Jackson Hole. Federal Reserve Chair Jerome Powell is expected

to deliver an aggressive tightening message at the annual


While the slowing Chinese economy has weighed on the local

currency, the fall also comes as the U.S. dollar has been buoyed

by expectations of aggressive Fed tightening.

The Chinese currency’s rapid fall recently had led to some

market speculation that Beijing could allow further yuan

weakness to boost its vast export sector.

“The strong RMB fixing shall help dismiss the notion that a

weak currency is a policy option to support growth,” said

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Frances Cheung, rates strategist at OCBC Bank.

Peiqian Liu, chief China economist at NatWest, also believed

that the recent yuan weakness has been mostly market-driven.

“We don’t see evidence of competitive devaluation – FX

weakness likely benefits only a small proportion of China’s

exports in value terms,” she said.

Liu expects the yuan to trade in a range of 6.75 to 6.95 per

dollar, with risks of testing the psychologically critical 7 per

dollar in coming months.

Sources told Reuters on Wednesday that China’s foreign

exchange regulator phoned several banks to warn them against

aggressively selling the Chinese currency.

The yuan market at 0400 GMT:


Item Current Previous Change

PBOC midpoint 6.8536 6.8388 -0.22%

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Spot yuan 6.8522 6.8579 0.08%

Divergence from -0.02%


Spot change YTD -7.26%

Spot change since 2005 20.79%


Key indexes:

Item Current Previous Change

Thomson 0.0


CNH index

Dollar index 108.419 108.677 -0.2

*Divergence of the dollar/yuan exchange rate. Negative number

indicates that spot yuan is trading stronger than the midpoint.

The People’s Bank of China (PBOC) allows the exchange rate to

rise or fall 2 percent from official midpoint rate it sets each



Instrument Current Difference

from onshore

Offshore spot yuan 6.8588 -0.10%


Offshore 6.7673 1.28%




*Premium for offshore spot over onshore

**Figure reflects difference from PBOC’s official midpoint,

since non-deliverable forwards are settled against the midpoint.


(Reporting by Winni Zhou and Brenda Goh; Editing by Ana

Nicolaci da Costa)



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