The yuan declined by 0.4% to 7.3079 against the dollar, dropping as far as 7.3125 per dollar in offshore trading. This marks the first time since November 4 that the yuan has reached such levels. The move came after the People’s Bank of China (PBOC) implemented a rate cut aimed at bolstering a faltering economic recovery.
The yuan experienced a brief rebound as major state-owned banks were observed selling dollars to provide support for the domestic currency.
The dollar index, which assesses the currency’s performance against six counterparts, including the euro and sterling, dipped by 0.06% to 103.11. Earlier, it reached a 1-1/2-month peak at 103.46 on Monday, buoyed by demand for safe-haven assets following a series of disappointing Chinese economic indicators that raised concerns about global growth.
Highlighting these concerns, Chinese data released shortly after the PBOC’s rate cut revealed unexpected slowdowns in industrial output, retail sales, and investment.
Matt Simpson, Senior Market Analyst at City Index, remarked, “We’re fast approaching a phase where bets will be on for another round of stimulus” in China.
Yield differentials suggest the potential for a breach of last year’s low of 7.3746 yuan per dollar, “but headlines that China’s state banks have been supporting the yuan should serve as a reminder that Beijing will decide if or when that happens,” he added.
