Two steps from China to support the yuan

China continues to support its currency, the yuan, which fell to its lowest level since November last week. The People's Bank of China (PBOC) set the daily dollar/yuan peg at 7.1992, well below the 7.3103 expected in a Bloomberg survey. Thus, the difference between the peg and the expectation was the highest since the survey began in 2018. Thus, the bank gave its strongest signal to support the yuan to date. In addition, the PBOC will hold a bond sale in Hong Kong today with a total amount of 35 billion yuan. This figure is also above this month's redemption amount of 25 billion yuan. According to Bloomberg data, the issuance amount will be above the redemption amount for the first time in two years, and this is expected to support demand for the yuan. Yesterday, an indicator that calculates the cost of borrowing in yuan instead of dollars experienced its sharpest increase in offshore transactions since 2017. Funding costs have been rising steadily in recent days as major Chinese banks have been reluctant to provide more money to the swap market, traders said. Citigroup Inc. strategists said the combination of the PBOC’s latest rate cut and its foreign exchange moves suggests the yuan is being allowed to weaken but its pace is being managed. The Chinese economy’s woes have been weighing on the currency for months.