China took further steps to support its sinking yuan by setting its currency reference rate at a higher-than-expected level, as the country’s widening monetary policy gap with the US pushed the currency to the lowest in two years.
The People’s Bank of China (PBOC) on Thursday set the fixing at 6.8536 per dollar, 120 pips higher than the median forecast in a Bloomberg survey and the strongest bias since February 2020. The onshore yuan hit a new 2-year low on Wednesday.
According to Bloomberg, this is a sign that the central bank intends to reduce the depreciation of the yuan.
PBOC cut a key policy rate this month to boost an economy hit hard by Covid restrictions, putting downward pressure on the Chinese currency. A hawkish statement from the upcoming Federal Reserve Jackson Hole symposium is expected to strengthen expectations for aggressive rate hikes and exacerbate capital outflows from China as the country’s monetary policy diverges further from that of the US.
