The Chinese currency has weakened in recent months. This is the result of the economic crisis that the country is struggling with. Economic growth, foreign investment and trade are declining, while unemployment is rising. China’s real estate sector is reeling.
On Tuesday, the yuan hovered near an all-time low of 7.31 against the dollar. Earlier this year, its rate hit 6.70 at a time when the post-pandemic recovery prospects were still high.
China is trying to save the currency
The People’s Bank of China tried to support the currency by setting aggressive daily reference rates. Meanwhile, Reuters reported that China had asked state-owned banks to intervene in currency markets to strengthen the yuan, and Bloomberg reported that authorities had also raised funding costs to bet against the yuan.
Rising global yields, higher oil prices, a strong dollar and recent weakness in financial markets are all putting downward pressure on the yuan – not to mention investors reducing their exposure to Chinese assets for several months.
The real estate market is shaking
Domestically, slowing land sales and new home starts are adding to an already weak housing market, and JPMorgan expects the real estate sector to bring further difficulties.
According to JPMorgan, the larger-than-expected interest rate cuts by the central bank have given markets reason to expect the currency to weaken further as it tries to revive the wider economy.
According to the bank, recent strong fixing trends and any further moves are unlikely to be enough to discourage short bets against the currency. JPMorgan said China’s large foreign exchange reserves and dollar holdings give policy makers the opportunity to limit the weakening of the yuan in the near term.