PBOC's Soft Dollar Peg to Help Yuan Basket Fall

By Ye Xie, Bloomberg Markets Live reporter and commentator

The PBOC has managed to keep the dollar-yuan exchange rate as flat as a pancake. It’s as if Beijing has pegged the yuan to the dollar.  Luckily for Beijing, the dollar is weakening. By keeping the dollar-yuan rate steady, the PBOC is riding the wave of a weak U.S. currency and knocking the yuan down against the currencies of most of China’s trading partners. For policy makers in Beijing who are worried about the record trade-weighted exchange rate, a soft dollar came at the right time.

The dollar’s decline this week in the face of an increasingly hawkish Fed surprised many market observers. But historically, it’s common for the dollar to peak shortly before the first rate hike and decline more decisively once the tightening cycle commenced.

This chart shows the DXY’s average performance 12 months before and after the first rate increase during

Keep reading this article on Zero Hedge - Blog.

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