The offshore yuan weakened to around 6.85 per dollar on Friday, ending a four-session rally and pulling back from a more than two-year high reached in the previous session. The move came after the People’s Bank of China adjusted policy settings to reduce the cost of dollar forwards, announcing it would cut the foreign-exchange risk reserve requirement ratio to zero from 20%, effective March 2. This marks a reversal from its September 2022 decision to raise the ratio in order to curb sharp yuan depreciation and stem capital outflows.
Sentiment toward the yuan was further dampened by continued efforts from the PBOC to restrain the currency’s rapid appreciation. The central bank set the daily midpoint fixing at 6.9228 per dollar, 800 pips weaker than Reuters’ estimate, the largest recorded deviation. Even with Friday’s decline, however, the offshore yuan remains on track for its strongest weekly gain since April 2023.
