Yuan fails to confront a strengthening US dollar, and traders bet on its further weakening

On Wednesday, the onshore yuan has fallen to its lowest level since 2008 (7.2521 yuan per US dollar). This event caused another verbal warning against currency speculations from the People’s Bank of China. The bank’s representatives highlighted that it has a considerable experience in coping with such currency turmoil.

The comments on the event occurred when the bank made bets against yuan more expensive in the derivatives markets. A jump in the required ratio from 0% to 20% (as of Wednesday) increased the dollar’s purchasing price in the currency forwards market.

Despite the fact that the onshore yuan has broken an 8-days declining strike on Thursday, the offshore yuan is still weak. Derivatives traders are betting on reoccurrence of the currency’s fall – the options market foresee a 60% probability of the currency’s fall to the level of 7.3 yuan per dollar within a month.

The People’s Bank of China distress is shared by other politicians worldwide, because the US dollar doesn’t seem to stop growing. However, a rapid decline of the yuan is also caused by the Chinese economic slowdown due to the pandemic of COVID-19 and a series of lockdowns, as well as a housing-market crisis.

While the US Federal Reserve System and most of the central banks aggressively increase interest rates, China continues to adhere to a soft monetary policy.

There are a few signs showing that the yuan’s weakening is becoming more widespread, as a trade-weighted index went down by 6% in comparison with the peak in March and continues its decline to the low of this year.