Forex – Yuan Advances as PBOC Urges Banks to Cut Momentum-chasing Behavior

Aug 08, 2018

China’s yuan strengthened for a second day after the People’s Bank of China (PBOC) reportedly urged the banks to prevent any “herd behavior” and momentum-chasing moves in the forex markets.

The USD/CNY pair was down 0.17% to 6.8217 at 1:00AM ET (05:00 GMT). The offshore yuan, on the other, lost momentum as the USD/CNH pair climbed 0.06% to 6.8249.

The yuan was one of the worst performing currency in Asia this year as it has weakened more than 6% against the dollar in the past three months amid an intensifying trade dispute with the U.S. Signs of a slowing economy also pushed the Chinese currency down.

The U.S. said on Wednesday that it would begin slapping 25% duties on an additional $16 billion in Chinese goods in two weeks.  

The move would be the second time the Trump administration imposed duties on Chinese imports since July. The U.S. levied 25% duties on $34 billion in Chinese goods on July 6. In response, China followed up by imposing duties on the same value of U.S. products. China's Ministry of Commerce said it had no choice but to respond to the U.S. after the latter "launched the largest trade war in economic history."  

Meanwhile, the U.S. Dollar Index, which tracks the greenback against a basket of other currencies, was down 0.2% at 94.87 on Wednesday.

"If there are clear signs of a slowdown of the U.S. economy due to the tariffs imposed in July, then I think the market will begin to price in slower rate hikes or no rate hikes by the Federal Reserve,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

The dollar index rose more than 6% since mid-April. Rate hikes by the Federal Reserve were cited as supportive for the dollar.

Elsewhere, the AUD/USD pair climbed 0.12% to 0.7430, while the NZD/USD pair also gained 0.21% to 0.6755.

The Japanese yen rose against the dollar on Wednesday, as the USD/JPY pair traded 111.29, down 0.08%.