Yuan Weakens as PBOC Signals Discomfort With Rapid Gains

The yuan weakened markedly against the dollar after the Chinese central bank signalled that it is determined to control the pace of its gains.

The Chinese currency has shrugged off weak domestic economic data and the dollar's firmness to strengthen to multi-year highs against the greenback in recent weeks, prompting policymakers to step in to cool its ascent.

In the latest effort, the People's Bank of China on Tuesday said it will tweak rules to require local financial institutions to lock up more foreign-currency holdings with the central bank, effectively reducing domestic dollar liquidity.

Analysts see the move as largely symbolic, but delivering the message that the central bank isn't comfortable with the yuan's rapid appreciation.

After the announcement, the yuan softened to its weakest levels in about two weeks against the dollar in both onshore and offshore trading, to around 6.67 yuan. The onshore decline puts the yuan on track to snap a 13-session winning streak and what could be its biggest intraday drop in about six months.

ANZ strategist Zhaopeng Xing calculates that the rule change will withdraw about $24 billion from the market. That's small compared to the $30 billion in average monthly net forex sales but should help slow the yuan's appreciation, Xing said.

The yuan has outperformed most of its Asian peers, gaining more than 4% against the greenback so far this year thanks to the surge in Chinese exports.

But China's trading partners say the currency remains undervalued, and are keen to see a much stronger yuan that would make Chinese exports less competitive and help rebalance trade surpluses.

The PBOC has been setting firmer yuan-dollar daily reference rates, signaling tolerance for gradual appreciation. But it's clear that there is no appetite for aggressive strengthening that would dent Chinese exporters' competitiveness, economists say.

If the yuan continues to gain too quickly, the PBOC could take more measures, said Zhennan Li at Asia Macro Pulse. However, the direction of travel should still be determined by fundamentals, and the PBOC doesn't aim to change that, the economist said.

Goldman Sachs economists agree, sticking to the view that the central bank still favors gradual yuan strengthening.

"We maintain our 12-month USD/CNY forecast of 6.40, as the very large trade surplus and solid exporter demand for FX conversion should remain the main drivers of the RMB trends," GS said.

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(END) Dow Jones Newswires

November 03, 2026 00:56 ET (05:56 GMT)