On July 31, 2025, the People's Bank of China (PBOC) took decisive measures to halt the further decline of the yuan, which hit its lowest level in two months against the U.S. dollar.
PBOC Intervention and Reasons
The PBOC set its daily reference rate at 7.15 yuan per dollar, marking the largest deviation from analyst expectations since late April. This move was a response to the pressure on the yuan initiated by comments from U.S. Federal Reserve Chair Jerome Powell regarding the potential absence of interest rate cuts in September.
Market Response to Fed Comments
Powell's remark that no decisions had been made regarding rate cuts for September drove the dollar to its highest level since early June. This raised doubts among investors who had been betting on a strengthening yuan in the near term, accelerating its fall. Khoon Goh from ANZ noted that the PBOC's intervention is aimed at stabilizing the situation, as authorities seek to avoid significant currency volatility.
Economic Outlook and Yuan Pressure
Economic experts like Fiona Lim from Malayan Banking Berhad highlighted that the dollar's sudden strength caught many investors off guard. Derek Holt from Scotiabank warned that there is limited room for easing U.S. monetary policy in the near term. This scenario points to continued dollar strength, especially if inflation remains high and the job market stabilizes, directly influencing the behavior of currencies like the yuan.
Thus, PBOC's measures to stabilize the yuan emphasize the sensitivity of the currency market under current global economic conditions and the influence of external factors on exchange rate dynamics.
