The People’s Bank of China (PBOC), China’s central bank, sets the daily midpoint for the yuan (also known as the renminbi or RMB). Operating under a managed floating exchange rate system, the PBOC allows the yuan’s value to fluctuate within a band of plus or minus 2% around the central reference rate, or midpoint.
Today, the PBOC injected CNY 26 billion through 7-day reverse repos at an unchanged interest rate of 1.4%. According to Reuters estimates, the PBOC is expected to set the USD/CNY reference rate at 7.0240.
Traders often interpret the daily fixing of the USD/CNY midpoint as a policy signal rather than a mere technical reference. A higher-than-expected midpoint typically suggests that the PBOC is resisting appreciation pressure on the yuan, as seen in today’s setting.
In recent trading, the offshore yuan (CNH) strengthened to 7.02 per dollar, reaching its strongest level since October 2024. At the opening of Wednesday’s session, USD/CNY moved to its lowest level since 30 September 2024.
In other foreign exchange news, sterling (Cable) rose to a three-month high above 1.3530 against the US dollar. The euro also strengthened, reaching its highest level in three months above 1.1805 against the dollar.
The Japanese yen is gaining strength following recent data releases and comments from the Bank of Japan (BoJ). The BoJ’s Services Producer Price Index for November rose by 2.7% year-on-year, matching expectations and the previous month’s figure. October BoJ minutes highlighted concerns over persistent inflation and risks related to asset prices.
The yen has performed well this week, supported by warnings from Japanese officials. Earlier remarks by Atsushi Mimura cautioned against excessive and one-sided currency moves, prompting traders to reassess short-yen positions. This sensitivity to volatility was further emphasised by Finance Minister Satsuki Katayama, signalling that sharp or disorderly currency swings would not be tolerated.
Consequently, these interventions have bolstered the yen, with USD/JPY falling below 156.50.
Original Source: Eamonn Sheridan of investinglive.com
