China's Yuan stages sharp rebound after central bank, state banks step in

China Yuan rebound: China's Yuan currency rallied significantly against the US Dollar on Monday. This surge comes after the People's Bank of China (PBOC) set a stronger midpoint fixing and state-owned banks reportedly intervened by selling Dollars.

The Yuan had been weakening recently, even dipping below the key psychological level of 7.2 Yuan per Dollar on Friday. This depreciation triggered concerns and caused volatility in China's stock market.

The PBOC, China's central bank, signalled its discomfort with the Yuan's decline by setting a much stronger midpoint rate for trading on Monday. This midpoint, at 7.0996 Yuan per Dollar, was the highest since November 2023.

Furthermore, major state-owned banks are suspected to have sold Dollars in onshore markets to directly support the Yuan. This intervention helped stabilise the currency and reverse its recent downward trend.

The Yuan strengthened by as much as 388 pips (basis points) in early trading, putting it on track for its biggest daily gain in nearly three months. By midday, it was trading at 7.1973 Yuan per Dollar, a significant improvement from Friday's close.

Analysts attribute the recent Yuan weakness to a combination of factors, including global Dollar strength and the depreciation of the Japanese yen, with which the Yuan has become increasingly correlated.

The exact intention behind the central bank and state bank actions remains unclear. It's uncertain whether they aim to defend a specific level like 7.2 Yuan per Dollar or simply slow down the overall depreciation.

Despite the onshore Yuan's rebound, the offshore Yuan traded at a slight premium, indicating some lingering risk sentiment in offshore markets.

(With Reuters inputs.)