USD/CNY: Forex RRR cut unlikely to stem the yuan's weakening trend – ING

FXStreet Insights Team FXStreet

The People's Bank of China cut the required reserve ratio of foreign currency deposits that banks need to keep at the central bank. Nonetheless, the yuan is set to keep weakening, economists at ING report.

Cutting FX RRR won't strengthen yuan

“The PBoC cut the forex RRR again this year – this time to 6% from 8% effective 15 September 2022. We believe that this RRR cut will not change the yuan weakening trend. This is because this round of yuan weakness comes from a strong US dollar and the expectation of more Federal Reserve hikes at the coming meetings.”

“Our USD/CNY forecast is 7.05 by the end of 3Q22.”

“Less aggressive rate hike talk in the market nearer the end of the year might help the yuan to strengthen slightly. As such, we expect USD/CNY to fall to 6.85 by the end of the year.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD approaches May highs near 1.3650 on renewed USD selling

GBP/USD approaches the May high, while trading near 1.3650 in the European session on Thursday. The US Dollar slips again even as markets assess whether the US Treasury buyback will be a game-changer. Attention now remains on US data and Middle East headlines for further trading impetus.

EUR/USD hits fresh three-month highs above 1.1700

EUR/USD is at its highest level in three months, above 1.1700, in European trading on Thursday. The pair regains traction as the US Dollar resumes its downside, led by the US Treasury's bond buyback plan.. US Jobless Claims data are next in focus amid lingering Iran risks.

Gold stays in red below $4,500 despite resurgent USD supply

Gold sticks to modest intraday losses and remains below the $4,500 mark in the European session on Thursday. Despite geopolitical uncertainties, the US Dollar loses ground again, resuming the previous day’s slump to a three-month low.

Bitcoin extends gains above $71,000 as liquidity conditions improve

Bitcoin extends its gains, inching toward $72,000 on Thursday, as crypto markets continue to cheer the US Treasury’s decision to double its debt buyback operations. The move has sharply improved market sentiment and liquidity conditions, helped trigger a short squeeze, and overall provided a positive catalyst for the broader crypto market.

The bond coup

Yesterday was marked by a coup from the US Treasury, which suddenly announced that it will ‘at least double’ the maximum size of its buyback operations for longer-term debt, hoping to ease pressure on long-term yields and borrowing costs. Phoah! The markets reacted heavily to the news. The US 10-year yield fell sharply, while the 30-year yield dropped from its highest levels since 2007.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.