China has taken a bold step in defense of its currency, with the largest fixing on record. The People’s Bank of China set the daily fixing at 7.2006 yuan to the dollar, surpassing the average estimate of 7.305 yuan. This significant gap between the fixing and the estimate is the largest since the Reuters poll began in 2018, according to ING analysts. The move comes as the onshore yuan hit a 16-year low earlier this week, prompting concerns about China’s economy. Meanwhile, the offshore yuan continued to weaken as the dollar rose to 7.3106 yuan. These developments have intensified worries, particularly in the property sector, following Evergrande’s recent filing for bankruptcy protection in the U.S.
China Defends Yuan with Record Fixing
China has taken a strong stance in defense of its currency, the yuan, by setting a record fixing against the US dollar. The yuan is allowed to trade within a 2% band relative to the daily fixing, and on Friday, the People’s Bank of China set the fixing at 7.2006 yuan to the dollar. This is significantly lower than the average Reuters estimate of 7.305 yuan, marking the largest gap compared to estimates since the Reuters poll began in 2018, according to analysts at ING.
The onshore yuan, which refers to the currency market within mainland China, fell to a 16-year low on Wednesday, with one US dollar equaling 7.2981 yuan. However, on Friday, the onshore yuan gained some strength, as one dollar was valued at 7.2895 yuan. Meanwhile, the offshore yuan, which is the market for the Chinese currency outside of mainland China, continued to weaken as the dollar rose 0.1% to 7.3106 yuan.
The weakening of the yuan comes amid growing concerns about China’s economy, particularly in the property sector. This concern has been further heightened by the news that Evergrande, a major Chinese property developer, has filed for bankruptcy protection in the United States. The ripple effects of Evergrande’s financial troubles have raised worries about the stability of the Chinese real estate market and its potential impact on the broader economy.
In response to these challenges, China has taken a proactive approach to defend its currency. By setting a record fixing that is lower than expected, the central bank aims to curb the depreciation of the yuan and stabilize its value. This move demonstrates China’s commitment to maintaining stability in its currency and mitigating the impact of external factors on its economy.
In conclusion, China’s decision to set a record fixing for the yuan shows its determination to protect its currency amidst growing economic concerns. By taking this proactive step, China aims to maintain stability in its currency and prevent further depreciation. However, the challenges facing the Chinese economy, particularly in the property sector, continue to cast a shadow over the stability of the yuan and the broader economy. Investors and market participants will closely monitor developments in China to assess the potential impact on global markets.
Takeaways:
- China has set a record fixing for the yuan, aiming to defend its currency against depreciation.
- The onshore yuan weakened to a 16-year low but slightly recovered, while the offshore yuan continued to weaken.
- Concerns about China’s economy, particularly in the property sector, have been heightened by Evergrande’s bankruptcy filing.
- China’s proactive approach to stabilize its currency demonstrates its commitment to maintaining stability and mitigating external risks.
- The challenges facing the Chinese economy will continue to be closely monitored for their potential impact on global markets.
