USD/CNH and USD/CNY have risen again overnight. The background to the weaker yuan is that the People’s Bank of China has loosened up on dampening USD/CNY, we had a warning of this on Monday:
HSBC expect the USD/CNY reference rate to drift higher (yuan weaker)
And since then the Bank have indeed allowed the CNY to drift lower:
US Treasury report clears Japan of FX manipulation, but says will monitor them
I’m wary that we are seeing a significant change on yuan policy from the PBoC. I don’t think they’ll just let it go. Indeed the Governor spoke mid-week and ruled out allowing ‘overshooting’.
PBOC Governor says monetary policy will provide support for China’s economic recovery
The PBoC have been hampered from lowering interest rates and stimulating the economy this way by the weak yuan.
This article was written by Eamonn Sheridan at www.forexlive.com.
