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Chinese yuan’s depreciation pressure against dollar is temporary

Chinese yuan's depreciation pressure against dollar is temporary - state media

© Reuters. FILE PHOTO: Coins and a banknote of China’s yuan are seen in this illustration picture taken February 24, 2022. REUTERS/Florence Lo/Illustration/File Photo

SHANGHAI/SINGAPORE (Reuters) – The depreciation pressure on the against the U.S. dollar is temporary, state media said on Tuesday, noting that its value against major trading partner currencies is stable.

The remarks made by the official Economic Daily follow several other similar comments by authorities in recent months, both through state media and at press conferences, and come a time the yuan has been facing persistent weakness against the U.S. currency.

It is down more than 5% on the greenback year-to-date and is the one of the worst performing Asian currencies in 2023. But against a basket of key currencies the yuan has only lost 0.15% in the same period to 98.52 on Tuesday, according to Reuters calculation based on official data.

Widening yield differentials with other major economies, particularly the United States, have piled downward pressure on the Chinese currency against the dollar.

“The yuan exchange rate still depends on economic fundamentals in the long run,” the newspaper said in the commentary.

“Financial regulators will take action when needed, resolutely correct unilateral and pro-cyclical behaviors, deal with activities that disrupts market orders, and prevent the exchange rate overshooting risks.”

The People’s Bank of China (PBOC) cut the amount of foreign exchange that financial institutions must set aside as reserves last week, a move that the Economic Daily described as having a “positive impact” on stabilising expectations on the currency and restoring market confidence.

“Based on previous FX reserve requirement ratio (RRR) reductions, the cut could ease depreciation pressure, prevent overshoot risks and boost confidence in the short term,” it said.

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