Investing.com – The Chinese yuan gained on Monday as the People’s Bank of China (PBOC) stepped in to support the currency by re-introducing a counter-cyclical factor to its daily fixing mechanism.
The USD/CNY pair traded at 6.8099 by 1:15AM ET (05:15 GMT), down 0.1% after China’s central bank on Monday lifted its official yuan midpoint more than expected to 6.8508 per dollar.
Monday’s official yuan midpoint was 202 pips, or 0.3%, firmer than the previous fix of 6.8710 on Friday.
The PBOC said on Friday that banks would resume using the “counter-cyclical” factor when calculating the yuan’s daily reference rate to support the currency amid broad dollar strength and ongoing trade tensions between Washington and Beijing.
China had suspended use of the factor in January, when regulators became more comfortable with the yuan’s strength after several months of gains against the dollar.
“Any dollar-yuan rallies will be a lot less punchy and a lot more gradual, so it will have a dampening effect,” Bechtel said. “It provides stability to the entire Asian-EM complex. It does help cap the rally in the dollar, or at least stall it.”
The yuan has slid more than 6% against the greenback since mid-June.
The U.S. Dollar Index slipped 0.01% to 95.07 on Monday as the dollar’s safe-haven appeal dimmed after a well-received speech from Federal Reserve Chairman Jerome Powell.
Vice Ministers from China and the U.S. are due to meet later this month to resume trade negotiations, after the last round of trade talks ended with little progress made. In addition, US tariffs on $16 billion of Chinese goods went into effect on August 24th, with China quick to follow with reciprocal restrictions and a threat to file a complaint with the World Trade Organization.
Meanwhile, the yen also recovered some ground as the USD/JPY pair traded 0.2% lower on Monday.