The Chinese yuan reached a yearly low against the US dollar for the first time since November 2023. A bit earlier, the Chinese currency dropped by 0.6% to 7.26 per US dollar.
In response to all this drama, the People's Bank of China proposed to ease monetary policy and lower the reserve ratio requirements for banks. The key idea is to support the economy and consumer spending. However, there are concerns about the capital outflow.
Besides, a Fed rate cut or series of cuts would offer leeway for its Chinese counterpart to lower borrowing costs to prop up economic growth. Notably, Fed Chair Jerome Powell has recently dropped a hint about a possible key rate cut.
Last year, the yuan also showed similar dynamics amid a decline in both exports and imports. In addition, a slump in consumer spending also affected the national currency. State-owned banks and companies then resorted to interventions, trying to prevent the yuan from depreciating.
Strangely enough, at that time, China's government bond yields also decided to test what it was like to be at the bottom. Banks, faced with a choice of where to invest, became very interested in government bonds.
