LONDON, Feb 27 (Reuters) – JPMorgan’s analysts said they were closing their long offshore Chinese yuan position after the country’s central bank cut the cost of buying dollar forwards on Friday in a bid to tame the yuan’s recent rally.
The People’s Bank of China said it would cut to zero from 20% the risk reserves that banks and financial firms must set aside when purchasing foreign exchange via currency forwards, effective March 2.
The offshore yuan – up 7.5% against the dollar since the start of 2025 – weakened more than 100 pips after the announcement, slipping past 6.85 per dollar.
“Having run CNH longs since November, we tactically neutralise the position while taking profit on our CNH/SGD (offshore yuan vs Singapore dollar) longs,” JPMorgan’s analysts said in a research note.
“The new (risk reserves) rule should prompt an uptick in dollar buying from onshore investors via FX forwards, which have collapsed meaningfully since 2022.”
They added the “earlier-than-expected move” reinforced the view that the yuan’s rise had “probably gone a bit further than what the PBOC is comfortable with”.
“This has also raised concerns of whether the bullish momentum in the yuan is running out of steam, at least over the short run.”
The offshore yuan has risen around 4.2% since early November.
China’s currency exists in two forms: the onshore CNY, the restricted, mainland Chinese version, and the offshore CNH, the freely traded version used in centres such as Hong Kong.
Despite the tactical shift, JPMorgan’s analysts said they retained “a bullish bias over the medium term for CNY FX”, expecting international investors to keep buying Chinese stocks and Chinese corporates to continue selling dollars.
“If this pans out, it could risk downside to our medium-term USD/CNY targets,” they said. “As a result, we would be inclined to re-engage in outright long CNY positions if/when levels become more conducive.”
(Reporting by Marc Jones. Editing by Mark Potter)
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