Expectations of a recovery in the yuan as the central bank waits for the dollar’s ​​strength to weaken

The Chinese yuan is expected to rebound over the next three months based on historical data, according to a Bloomberg analysis.

Strategist Simon Flint studied the performance of the Chinese currency after a number of times it approached the lower end of its 2% trading range against the US dollar and found that over the following months, the yuan tended to rise. Today in the article “Macro Models”, he pointed out that the Chinese central bank’s approach of waiting for a shift in the performance of the US dollar is the correct approach.

The yuan – as well as its regional counterparts – is under intense pressure as the dollar threatens to rise on bets that the US Federal Reserve will keep interest rates high for longer. Beijing’s inadequate support policies for China’s faltering growth also negatively affect investor confidence.

China maintained its strong control over the yuan for most of this year, as the country’s wide interest rate gap with the United States of America gives an advantage to the green currency. Pressure on the Chinese currency has increased recently due to the worsening capital outflows.

Fiona Lim, chief strategist at Malayan Banking, explained: “For the majority of historical cycles, the People’s Bank of China has been able to keep the yuan stable until the market environment begins to shift in favor of the local currency.”