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posted by Guy M Wong alias guywong on Thursday 29th of September 2022 09:11:59 PM China tells state banks to prepare for a massive dollar dump and yuan buying spree as Beijing's prior interventions have failed to stem its currency's worst year since 1994 ▫️ Reuters reported that China told state-owned banks to get ready to sell dollars and buy yuan in an effort to prop up the local currency. ▫️ The move could stem the yuan's fall, as it remains on track for its largest annual loss against the dollar since 1994. ▫️ A hawkish Fed has pushed the dollar to 20-year highs this year, pressuri The People's Bank of China has told major state-run banks to prepare to shed dollar holdings while snapping up offshore yuan, which has continued to fall despite prior interventions, sources told Reuters. The scale of this latest effort to prop up the yuan will be big and could provide a floor to the Chinese currency, according to the report. The amount of dollars to be sold hasn't been decided yet, but Reuters said it will primarily involve the state banks' currency reserves. Their offshore branches, including those based in Hong Kong, New York and London, were ordered to review offshore yuan holdings and check to see that dollar reserves are ready. On Thursday, the yuan fell 0.9% to 7.1340 against the dollar and is on track for its worst annual decline since 1994, having lost more than 11% so far this year. Earlier this week, China's offshore yuan this week depreciated to a record-low against the greenback, and its domestic unit fell to its weakest level since the 2008 financial crisis. The Federal Reserve's hawkish policy path has bolstered the dollar to 20-year highs this year, putting pressure on other central banks and triggering a "reverse currency war." While a weaker currency can sometimes be beneficial, as it means exports get cheaper, the yuan's recent decline below the psychological threshold of 7-per-dollar has raised concerns. The People's Bank of China has consistently imposed a strong bias to its currency reference rate to help support the yuan. Central bank officials have also issued verbal warnings against speculating on the yuan and increased the cost of shorting the currency. But it has refrained from raising benchmark rates and instead has been easing them in an effort to spark growth in an economy that's been dragged down by COVID-19 lockdowns, a real estate crash, and supply chain snags. Japan and Korea have dumped billions of dollars defending the yen and the won against the strong US currency ▫️ Japan and Korea have dumped billions of dollars in FX markets to prop up their currencies against the dollar. ▫️ Japan last week spent up to 2.8 trillion yen ($19.35 billion) to aid the yen in its first market intervention since 1998. ▫️ The dollar was initially pushed down from ¥145 but it has since recovered ground to trade at ¥144. Japan and Korea have dumped billions of dollars into the foreign exchange market to prop up the value of their respective currencies against the US dollar, which has been steamrolling over most of its rivals this year. Japan last week spent up to 2.8 trillion yen ($19.35 billion) to aid the yen, a notice from the Ministry of Finance on Friday showed. The record amount represented 15% of funds available for intervention efforts, Reuters reported. This week's market intervention marked the country's first since 1998. South Korea sold $15.41 billion in the second quarter, the Bank of Korea said in its quarterly intervention notice. That was the largest amount since the central bank began disclosing figures in 2019, according to Bloomberg. This year, the dollar has surged 26% against the yen and has risen 21% versus the won. The Asian currencies, like other currencies from both developed and emerging market economies, have slumped against the dollar as the Federal Reserve's aggressive path of interest rate acts as a sturdy driver of strength for the greenback. The Fed this month issued its third straight rate hike of 75 basis points and its fifth rate hike of the year as it works to bring down inflation. The yen and the won have also been hurt by trade deficit concerns in part as both economies are importers of oil, the price of which has ballooned this year following Russia's invasion of Ukraine seven months ago. Japan's intervention knocked the dollar down from around 145 yen to the 141 handle but the greenback has nearly recovered its ground. The dollar was up 0.2% at 144.66 yen on Friday. The greenback on Friday was up 0.4% against South Korea's currency, buying 1,436 won. It advanced by 11.5% during the three months ended June, the quarter for which the Bank of Korea released its notification on Friday. Sterling hits all-time low versus broadly stronger dollar Euro could sink further against the dollar, IIF says The single currency has lost more than 12% of its value against the greenback since the start of this year Japanese yen sinks to new 24-year low against dollar One dollar was worth more than 140 yen for the first time since 1998 in afternoon deals in Europe, as the greenback also strengthened against other currencies.

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