The People’s Bank of China announced today that it will lower the foreign exchange risk reserve requirement for financial institutions purchasing foreign exchange via forwards to zero from 20%, effective March 2. The move reverses a September 2022 tightening measure that had been introduced to curb rapid Yuan depreciation and stem capital outflows.
At the time, the higher reserve requirement made it more costly to bet against the Yuan. Now, with the currency having surged to a near three-year high against Dollar, the adjustment signals a shift in priorities. The central bank framed the decision as support for enterprises in managing exchange-rate risks, while reiterating its commitment to maintaining the renminbi at a “reasonable and balanced level.”
Markets widely interpret the move as an attempt to slow the pace of rapid appreciation rather than to trigger depreciation outright. Yuan strength has been broad-based this week, reflecting improving sentiment around China’s trade positioning and a softer Dollar backdrop.
USD/CNH recovered mildly on the news, but the bounce has not altered the prevailing technical picture. The pair has broken through 200% projection of 7.2224 to 7.0840 from 7.1381 at 6.8613 this week, and there is no clear sign of bottoming. Technically, near-term outlook remains bearish as long as 6.9106 resistance caps rebounds. The next downside target lies at the 261.8% projection at 6.7758.
