The yuan fell to a four-month low.

Expectations of China easing monetary policy and weakening Asian currencies have caused the yuan to depreciate against the US dollar.

In the Chinese market, the yuan briefly fell to 7.24 CNY per USD this afternoon, its lowest level since November 2023. This level broke through the important psychological threshold of 7.2 yuan per US dollar.

The yuan also fell to its lowest level in four months in the international exchange market, at 7.27 CNY per USD.

Reuters , citing sources close to the matter, reported that Chinese state-owned banks subsequently intervened by selling US dollars to buy the domestic currency. Currently, the Chinese currency is at 7.23 CNY per US dollar.

The USD/CNY exchange rate movement over the past year. Chart: Reuters

In three months, the currency depreciated by more than 2% against the US dollar. The yuan is under pressure as markets increasingly expect China to further ease monetary policy to stimulate the economy .

Carlos Casanova, chief economist for Asia at UBP Bank (Switzerland), believes that the strengthening of the USD, and the depreciation of the yen and many other currencies following the Bank of Japan's end of negative interest rates, have put pressure on the yuan.

This morning, the People's Bank of China (PBOC) set the reference exchange rate at 7.1 CNY per USD, weaker than yesterday. The currency is fluctuating within a 2% range. Investors say that for months, the PBOC has been setting the yuan's value stronger than market expectations.

Investors believe the yuan weakened due to heightened expectations of easing, after a PBOC official signaled on March 21 that there was still room to reduce the reserve requirement ratio (RRR). Ju Wang, a foreign exchange strategist at BNP Paribas, suggested that the PBOC's statements about easing could push the Chinese currency down to 7.3 CNY per USD.

Today's developments also put pressure on the Chinese stock market. The Shanghai Composite index closed down 1% on March 22. "A weaker yuan will make it difficult for stocks to rise, as many people will diversify their investments to the USD," Casanova explained.

Ha Thu (according to Reuters)

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