Chinese yuan (USDCNY) falls below 7.2 amid reports of PBOC intervention By

© Reuters– The Chinese yuan strengthened sharply on Monday, with the USDCNY pair falling below the key 7.2 level after reports that China’s state-owned banks are intervening in currency markets.

The pair fell 0.4% to 7.1978 yuan, after rising to a four-month high of 7.2 on Friday. Monday’s decline also followed a stronger-than-expected correction from the People’s Bank of China.

The offshore yuan, however, remained above the 7.2 level. The pair fell 0.5% on Monday to 7.2371.

The PBOC was seen instructing China’s state-owned banks to buy yuan and sell dollars in the open market, reports from Reuters showed on Monday. The PBOC also said it had intervened in currency markets last week to limit the rise in the USDCNY, as Beijing has been expressing unease with the yuan’s weakness.

The yuan has been hit by a heavy sell-off in recent sessions as China’s economic outlook remains worrisome, while inflation – up to one month – also weighed on the currency.

The PBOC recently signaled that it may lower interest rates to support China’s economy – a move that opens up local businesses, leaving the yuan vulnerable.

The 7.2 level is psychologically important for the yuan as a prolonged breach of that level has signaled further weakness in the Chinese currency.

The pair of USDCNY rose to 17 years in the middle to the end of 2023, rising to 7.3.

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