JPMorgan’s recent report highlights a “bearish” outlook on China’s yuan despite its recent slide. The bank suggests that the People’s Bank of China may need to intervene to prevent the move from accelerating and that a “circuit breaker” could be introduced to prevent currency weakness from going non-linear. As spot currency weakness and depreciation expectations tend to be self-reinforcing, a preemptive move could be necessary to stabilize the currency.
The report emphasizes the importance of the central bank’s official daily FX rate, or fixing, in stabilizing the yuan. With a weakening yuan, the central bank’s intervention could be necessary to prevent further depreciation. This intervention could come in the form of a circuit breaker which would prevent currency weakness from going non-linear. The report suggests that the central bank may need to take a preemptive move to prevent this from happening.
Overall, JPMorgan’s report highlights the potential for further weakness in China’s yuan. The report suggests that the central bank may need to take action to stabilize the currency and prevent further depreciation. As the global economy continues to face uncertainty, it will be interesting to see how China’s currency fares in the coming months and whether the central bank will take action to prevent further weakness.
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