Asia FX moves little with focus on US-China trade, dollar steadies ahead of CPI
Investing.com -- China’s central bank is taking steps to limit further weakness in the yuan, instructing major state-owned banks to curb their U.S. dollar purchases and tighten scrutiny on foreign exchange transactions, Reuters reported Wedndesday, citing sources with direct knowledge of the matter.
The move comes amid growing pressure on the currency, which has fallen roughly 1.3% this month and was trading around 7.35 per dollar on Wednesday.
The offshore yuan briefly touched a record low overnight, reflecting concerns over heightened U.S.-China trade tensions following new U.S. tariffs and Beijing’s retaliatory measures.
The People's Bank of China (PBOC) issued informal guidance—known locally as window guidance—to banks this week, asking them to avoid buying dollars for their own accounts, the report from Reuters said.
The report added that banks were also told to increase scrutiny when processing dollar purchase orders for clients, a measure seen by markets as aimed at discouraging speculative trading.
Large state banks on Wednesday were actively intervening in the onshore currency market, selling dollars and buying yuan to slow the pace of depreciation, the report said.
Despite the worsening trade environment, the PBOC is unlikely to allow a significant drop in the yuan’s value. “A sharp depreciation will not happen as that could hurt market confidence, but a modest depreciation will help exports,” Reuters cited one policy adviser familiar with the central bank’s position.
Another adviser reportedly noted that support for key companies could come in the form of “subsidies, tax rebates, or market diversification.”
Reuters said its sources emphasized that the PBOC is prioritizing financial market stability over using currency devaluation as a tool to offset the economic impact of tariffs.