China’s Yuan Has Further to Fall

China’s yuan is already at its weakest level against the dollar in over two years. But it might be poised to fall further still: Two major factors holding it up so far in 2022 look likely to reverse.

 The onshore-traded Chinese yuan closed at 7.16 to the dollar on Tuesday. The last time that happened was in May 2020, and it has only happened a handful of times since 2009. Like most emerging market currencies, the yuan has been pummeled this year by the combination of a hawkish Federal Reserve and worries over slowing global growth. Even so, the yuan’s fall in recent months is striking. It is down 12% against the dollar in 2022. JP Morgan’s EM Currency Index is only down 8%, according to Refinitiv data. On Monday, China’s central bank raised the risk reserve institutions must hold when selling forward currency contracts, making it more expensive to bet against the yuan.

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