Chinese Banks Boost Dollar Buying as Beijing Tries to Slow Yuan’s Rapid Rise

State Banks Move to Cool Fast Yuan Gains

China’s biggest state-owned banks have increased their U.S. dollar purchases in the onshore market, signaling a new round of currency intervention. The push comes as the yuan reached its strongest level in more than a year, prompting Beijing to prevent an appreciation that could hurt exports. Sources say the banks held the dollars instead of recycling them through swaps, which traders say is unusual and strategic.

Holding those dollars tightened liquidity and increased the cost of long yuan positions. As a result, one-year dollar to yuan swap points fell, showing that the market now faces higher expenses to bet on more yuan strength.

A Tactical Shift in Currency Management

The yuan has risen about 3.3 percent this year, putting it on track for its biggest annual jump since 2020. Analysts believe the fresh intervention aims to steady the currency rather than weaken it. Authorities have already supported the yuan through firmer reference-rate settings and earlier market actions.

Recent moves also contrast with guidance from the People’s Bank of China earlier this year. At the time, Beijing encouraged banks to avoid buying dollars to help protect the yuan from depreciation pressures linked to trade tensions.

What This Means for Global FX Markets

Market watchers are studying whether China plans to restrict dollar liquidity for a longer period. If state banks continue building their dollar holdings, global forex markets could feel ripple effects. Traders say the strategy may discourage speculative activity and slow down capital inflows that push the yuan higher.

Key points include:
• Higher dollar costs make long yuan positions riskier.
• Reduced liquidity may reshape carry-trade behavior.
• The intervention highlights China’s flexible approach to currency control.