- The yuan fell below the crucial 7-per-dollar threshold on Wednesday amid weak economic data.
- This is the first time this year that China’s currency has declined below that important psychological level.
- The yuan has fallen more than 4% from a January high as hopes for a major post-pandemic rebound mount.
The Chinese yuan weakened below the key level of 7 against the dollar for the first time this year as hopes of China’s post-pandemic recovery fade.
The yuan fell 0.3% to 7.0201 per dollar in offshore trade on Wednesday, and fell 0.4% to 7.0026 in onshore trade, according to Bloomberg data.
The yuan has fallen more than 4% against the dollar from January highs, when sentiment was still bullish after the country lifted its COVID restrictions last fall.
The currency’s latest decline came after a fresh slate of economic data from earlier this week pointed to weakness in manufacturing output, retail sales and fixed-asset investment.
The 7-per-dollar-level is often seen as having psychological significance for the yuan, though mostly arbitrary, a limit Chinese officials generally avoid crossing.
In previous situations where the yuan weakened beyond a threshold, China responded with swift intervention. For example, during the 2016 devaluation, the country drained over $107 billion into currency reserves to maintain renminbi strength.
For now, there has been little action by the People’s Bank of China. It came after central bank governor Yi Gang said in March that the 7-per-dollar level was no longer of psychological importance, and later said that the PBOC had substantially loosened its control over the currency.
But the bank still sets the level to which the onshore renminbi can move, allowing it to trade 2% against the greenback’s midpoint on a daily basis.
The yuan’s slump also comes as China is stepping up efforts to prop up the currency in global trade. But exporters are holding onto their dollars if the yuan continues to decline, according to Bloomberg, given its recent decline.