PBOC Yuan devaluation: 1600 pips USDCNH move in 5 hours

USDCNH up sharply following PBOC move

This is a >2.5% price action. Visually no less dramatic than the earlier performance by SNB-CHF in January and EURUSD’s 400 pip FOMC move in March. As economic picture weakens around the globe, competitive devaluation heats up. Each country tries to make its currency cheaper to make exports more competitive.

PBOC devalues Yuan aftermath

PBOC devalues Yuan aftermath

A quick look at headlines.


Headlines following PBOC Yuan devaluation from Google Search


And then there is this from JPMorgan reported on the South China Morning Post

We see two possible scenarios for the CNY outlook. In the first scenario, today’s move represents a regime-shift in China’s exchange rate system. Going forward, the People’s Bank of China will set the central parity rate based on the closing spot rate on the previous day. Technically, this means CNY will become a freely floating currency.

In the second scenario, the PBOC will try to re-anchor market expectations. That means the PBOC will sell US dollar in the spot market to prevent daily spots shifting away from the new central parity rate. Daily fixing will stay stable in the coming weeks. In this scenario, the intervention in the FX market will imply a further decline in FX reserve, affecting base money creation on the domestic front.

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