Investing.com– The Chinese yuan strengthened sharply on Monday, with the USDCNY pair falling below the key 7.2 level after reports said that Chinese state-owned banks were intervening in currency markets.
The pair fell 0.4% to 7.1978 yuan, after surging to a four-month high of over 7.2 on Friday. Monday’s drop also came following a substantially stronger-than-expected midpoint fix from the People’s Bank of China.
The offshore yuan, however, remained well above the 7.2 level. The pair fell 0.5% on Monday to 7.2371.
The PBOC was seen instructing Chinese state-owned banks to buy yuan and sell dollars in the open market, reports from Reuters showed on Monday. The PBOC had also reportedly intervened in currency markets last week to stem a spike in the USDCNY pair, given that Beijing has consistently signaled discomfort with weakness in the yuan.
The yuan was hit with a wave of selling in recent sessions as the outlook for China’s economy remained bleak, while a spike in the – to one-month highs- also weighed on the currency.
The PBOC recently signaled that it could cut some of its benchmark interest rates further to support the Chinese economy- a move that while unlocking more liquidity for local businesses, presents more downside risks for the yuan.
The 7.2 level is psychologically important for the yuan given that previous, sustained breaches of that level have heralded even more weakness in the Chinese currency.
The USDCNY pair had surged to 17-year highs in mid-to-late 2023, rising to as much as 7.3.
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