Chinese yuan remained stable after the People’s Bank of China (PBoC) cut lending rates to support economic growth.
The PBoC lowered both short and long-term rates by 10 basis points, reducing loan prime rates and weighing on bond yields.
This was the first broad rate cut since August of the previous year and comes as a part of a strategy to ease monetary conditions and encourage investment due to slower economic growth.
This move is aimed at bolstering lending and investment within China, addressing challenges in the property sector and sluggish consumer spending. While markets could remain cautious, lower financing rates could support economic activity.
However, the widening yield gap between the US and Chinese bonds may put additional selling pressure on the yuan as markets could expect more interest rate cuts if the Chinese economy does not improve as anticipated. Traders could monitor upcoming industrial profits and PMI data in search of clues on the state of the Chinese economy. The data could fuel some volatility.
