Okay, that’s enough.
The People’s Bank of China stepped in Friday and halted the three-day slide in the yuan, adding that it will continue to intervene should there be more large fluctuations in the Chinese currency.
The PBOC raised its daily fixing by 0.05% on Friday. This caused the onshore spot rate to strengthen in the final minutes of trading, gaining 0.11% and paring its drop for the week to 2.8%, reported Bloomberg.
“The PBOC sent its signal and people understand it’ll be very difficult to go against the PBOC’s will,” Ken Peng, a Hong Kong-based strategist at Citigroup, the world’s biggest currency trader, told Bloomberg. “The central bank will frequently intervene in the foreign-exchange market in the next three months because it needs to ensure the yuan is stable.”
After letting the currency float against the dollar on Tuesday, the yuan tumbled nearly 2%, with a similar drop on Wednesday. However, by Thursday, the yuan found a new equilibrium as the PBOC intervened via agent banks and signaled that the currency had fallen enough at a rare press briefing, according to Bloomberg.
“The PBOC sees 6.39-6.40 a dollar as an equilibrium level,” Li Liuyang, a Shanghai-based strategist at Bank of Tokyo-Mitsubishi UFJ told Bloomberg. “If the yuan doesn’t diverge from that level, the PBOC doesn’t need to intervene. If it does, the PBOC will step in.”
In Shanghai, the onshore yuan gained the most since June 30. It finished the week at 6.3918 yuan per dollar, 0.1% stronger than the fixing of 6.3975, according to China Foreign Exchange Trade System prices. The freely traded offshore yuan gained 0.5% to 6.4376 in Hong Kong, bringing its total weekly decline to 3.4%.
“They’re OK with a modest depreciation, but they don’t want the depreciation to get out of hand,” Dennis Tan, a currency strategist at Barclays in Singapore told Bloomberg.