Anna 
The Chinese yuan experienced a significant strengthening on Monday, with the USDCNY pair dropping below the crucial 7.2 level following reports indicating intervention by Chinese state-owned banks in the currency markets.
The USDCNY pair registered a notable decline of 0.4%, reaching 7.1978 yuan, after reaching a four-month high above 7.2 on Friday. Monday’s decline was further bolstered by a remarkably stronger-than-anticipated midpoint fix from the People’s Bank of China.
However, the offshore yuan remained notably above the 7.2 level, with the USDCNH pair observing a 0.5% decline on Monday, settling at 7.2371.
Reports from Reuters revealed that the People’s Bank of China (PBOC) directed Chinese state-owned banks to purchase yuan and offload dollars in the open market. This intervention follows similar actions taken by the PBOC last week to counter a surge in the USDCNY pair, reflecting Beijing’s consistent unease with yuan weakness.
In recent sessions, the yuan encountered substantial selling pressure amidst a dim economic outlook for China, coupled with a spike in the dollar to one-month highs, which exerted downward pressure on the currency.
Furthermore, the PBOC hinted at the possibility of further cuts to some benchmark interest rates to bolster the Chinese economy. While this move aims to inject more liquidity into local businesses, it also presents increased downside risks for the yuan.
The significance of the 7.2 level for the yuan is underscored by its psychological importance, as sustained breaches of this level historically signaled further weakness in the Chinese currency.
Notably, the USDCNY pair had surged to 17-year highs in the middle to late 2023, reaching levels as high as 7.3, reflecting the challenges and fluctuations faced by the yuan in recent times.
