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Chinese State Banks Selling US Dollars To Slow Yuan Drop: Report

Chinese yuan has lost nearly 5 per cent against the US dollar so far this year, making it one of the worst-performing Asian currencies

Major state-owned banks in China traded dollars for yuan on Thursday on the onshore spot foreign exchange market. As a measure to stop the decline in the local currency, the state banks sold the dollar at around the 7.25 level, reported Reuters. 

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Chinese yuan has lost nearly 5 per cent against the US dollar so far this year, making it one of the worst-performing Asian currencies. Low consumer confidence and a weak property market have reduced momentum from the post-pandemic recovery, as per the report.

“The state bank dollar selling appeared to prevent the yuan from weakening past the psychologically important 7.25 per dollar level," Reuters reported quoting a source aware of the matter.

The People’s Bank of China (PBOC) set the daily midpoint fixing stronger than expected for the yuan. 

According to analysts, the move was an official measure to limit the fall in the yuan.

In the foreign exchange market, the Chinese state banks usually act on the behalf of their central bank. However, they may also trade for themselves and their clients.

However, China is not the only country witnessing its currency’s downward trend, driven by widening yield differentials with the hawkish monetary policies in other economies.

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On Wednesday, Japan’s yen slipped to a seven-month low of 144.62 per dollar, the level last seen in November 2022. The dollar has gained as much as 11.55 per cent since late March against the yen. 

As other major central banks tighten monetary policy, the yen fell after the Bank of Japan indicated that it would stick to its ultra-easy monetary policy.

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