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HONG KONG, Sept 29 (Reuters) – China’s central bank has asked major state-owned banks to be prepared to sell dollars for the local unit in offshore markets as it steps up efforts to stem the yuan’s descent, four sources with knowledge of the matter said.

State banks were told to ask their offshore branches, including those based in Hong Kong, New York and London, to review their holdings of the offshore yuan and ensure US dollar reserves are ready to be deployed, three of the sources, who declined to be identified, told Reuters.

The simultaneous selling of dollars and buying of yuan could put a floor under the Chinese currency, which has lost more than 11% to the dollar so far this year and looks set for its biggest annual loss since 1994, when China unified its official and market rates.

The scale of this round of dollar selling to defend the weakening yuan will be rather big, one of the sources said.

The People’s Bank of China did not immediately respond to a Reuters request for comment.

China’s offshore yuan immediately bounced about 200 pips after Reuters’ story before last trading at 7.1849 per dollar as of 0935 GMT.

While the yuan’s depreciation has been gradual and in line with the decline in major currencies against a dollar buoyed by aggressive Federal Reserve monetary tightening, its decline to the weaker side of 7-per-dollar has raised concerns about domestic sentiment and potential capital outflows.

The offshore yuan moves in lock-step with the onshore unit, but its trading volumes account for about 70% of all yuan FX trades globally, dwarfing the volumes traded on the mainland.

Chinese authorities have intervened in the past in the offshore yuan market to steer the yuan.

Sources said the intervention plan involved using state lenders’ dollar reserves primarily. But the total amount of dollar selling is yet to be determined as the yuan’s movements are largely dependent on dollar moves and the Fed’s tightening trajectory, the source said.

China burnt through USD 1 trillion of its official FX reserves to prop up the currency after a one-off 2% devaluation in 2015 that roiled global financial markets.

State banks, which usually act as the PBOC’s agents in offshore markets, are scrambling to procure more dollars in offshore markets, one of the sources said.

The People’s Bank of China did not respond immediately when asked by Reuters about state banks stocking up on dollars.

The latest proposal follows other steps authorities have taken to put a floor under the yuan, through persistently setting firmer-than-expected mid-point fixings, verbal warnings and holding off major monetary easing efforts.

The PBOC has also rolled out policy measures this month, such as increasing the cost of shorting the currency by lowering the amount of foreign exchange financial institutions must hold as reserves and reinstating risk-reserve requirements on currencies purchased through forwards.

Earlier this week, Chinese monetary authorities told local banks to revive a yuan fixing tool it abandoned two years ago as they sought to steer and defend the weakening currency.

(Reporting by Julie Zhu in Hong Kong, and Shanghai & Beijing newsrooms; Editing by Vidya Ranganathan and Hugh Lawson)

 

TOKYO, Sept 29 (Reuters) – Sterling retreated again on Thursday from a sharp bounce against the dollar overnight, after the Bank of England announced unlimited bond purchases to shore up Britain’s financial markets battered by the government’s radical plans to cut taxes.

The UK currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. It committed to buying as many long-dated gilts as needed until Oct. 14.

Sterling was 0.51% lower at USD 1.0831 as of 1200 GMT, returning some of the previous session’s 1.41% rally. The euro weakened 0.32% to USD 0.97065, following Wednesday’s 1.51% surge, the biggest since early March.

Sterling had plummeted to a record low of USD 1.0327 on Friday as investors delivered a scathing verdict on the new government’s plan for record tax cuts funded by a massive increase in borrowing, at the same time as the BoE is aggressively tightening monetary policy to rein in rampant inflation.

Europe’s shared currency had plunged to a new two-decade low of USD 0.9528.

“The BoE’s bond purchases may temper the UK government’s borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Concerns about the UK’s fiscal plan and its broader economy suggest GBP will likely stay offered against the USD and other major currencies in the near term.”

The US dollar index, which measures the greenback against sterling, the euro and four other major peers, edged 0.07% higher to 113.11, heading back in the direction of Wednesday’s 20-year high of 114.78.

The dollar added 0.23% to 144.43 yen. The currency pair has kept its head below the 145 line since Japanese officials intervened a week ago, following a surge to a 24-year high of 145.90 that day.

Elsewhere, the risk-sensitive Australian dollar sank 0.38% to USD 0.64995, giving back some of Wednesday’s 1.34% climb.

New Zealand’s currency dropped 0.42% to USD 0.5706, following a 1.7% surge in the previous session.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

 

Sept 28 (Reuters) – The dollar index fell more than 1% on Wednesday, retreating from 20-year highs after the BoE’s announcement of emergency gilts purchases pushed yields lower globally, improving sentiment among investors fearing rising rates and UK contagion.

The exodus from gilts had lifted yields globally and the sterling selloff sent investors scurrying into the safe-haven dollar, leading to a risk rally and sharp reversal out of the dollar when the BoE stanched the bleeding in the UK government bond market.

The BoE intervention aimed to halt a crisis that developed after the UK’s budget-busting fiscal stimulus plan panicked investors and left UK pensions and mortgage lenders at dire risk.

The bond purchases could buy time for the financial sector to address funding issues and the BoE to hike rates enough to assuage investors’ inflation fears.

It could also give sterling a reprieve after it plunged to record lows, which exacerbated concerns over rising inflation and the clash between monetary and fiscal policy.

With the quarter coming to an end and the dollar nearing its most overbought quarterly RSI readings since the 1985 Plaza Accord that weakened it, a period-end profit-taking pullback fits the bill, with the scale depending on how US core PCE and payrolls data stack up on this and next Friday.

Risk-seeking flows out of the dollar could prove short-lived, however, with the Russian sword of Damocles hanging over energy markets and European economies.

EUR/USD gained 1.4% Wednesday after holding above Monday’s 20-year lows at 0.9528 on EBS. Wednesday’s bullish candlesticks would be bolstered by a close above Monday’s 0.97095 high, with further hurdles near 0.9800/65.

Sterling gained 1.4%, as the incredible 89bp drop in 30-year gilt yields more than erased Monday and Tuesday’s terrifying rise. The BoE is still priced to hike rates by 218bp by December and 335bp by May for a 5.8% policy rate ceiling, versus peak Fed rate pricing now at 4.45%.

A close above the tenkan at 1.0903 and Monday’s 1.0934 high is needed to keep the corrective rally running into quarter-end.

USD/JPY fell 0.5% due to retreating Treasury yields versus static JGB yields. The recovery from Thursday’s Japanese intervention low at 140.31 faltered again ahead of major 145 options expiries, as traders remain wary of getting caught long close to the 145.90 peak that preceded the intervention plunge.

The Australian and Canadian dollars gained 1.3% and 0.8%, but the offshore yuan was still down 0.14% after USD/CNH earlier traded beyond 2019/20 peaks at 7.1960/66.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

 

SINGAPORE/LONDON, Sept 28 (Reuters) – Nervous financial markets propelled the safe-haven dollar to a two-decade peak on Wednesday as rising global interest rates fed recession worries, while sterling drifted lower after the latest warnings about Britain’s radical tax cut plans.

The US dollar index rose around 0.5% to hit a new high of 114.78, its march higher helped by an equally relentless climb from benchmark US 10-year Treasury yields, which rose to 4% for the first time since 2010, climbing as high at 4.013%.

The dollar’s gains were broad based, with the euro down 0.43% to USD 0.956, under-fire sterling down a 0.7% at USD 1.0678 and the Australian dollar, which is particularly sensitive to swings in investors sentiment, down 1%.

“Resistance (to dollar strength) is futile,” ING analysts headlined a morning note.

“Whether it be US data surprising on the upside, the US Administration showing no concern at all with the strong dollar, or new chapters in the energy war in Europe, it looks like all systems are go for the dollar rally.”

“Trying to pick a dollar top in the current climate is an exercise in futility.”

The Federal Reserve has led the global fight against surging inflation, turning even more aggressive recently by signalling further big rate increases on top of super-sized moves in the past few months.

That message was reinforced on Tuesday by Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari, with Evans saying that the central bank will need to raise interest rates to a range between 4.50% and 4.75%.

The rising borrowing costs have intensified fears of a global recession, adding to the surge in bond yields worldwide.

But the dollar’s gains against the pound have also been driven by British domestic factors after the British government, last week announced a plan to slash taxes and ramp up borrowing.

That sent the pound down as low as USD 1.0327 on Monday, a record low, having held near the USD 1.1300 level before last week’s UK budget.

Bank of England Chief Economist Huw Pill said on Tuesday that the central bank is likely to deliver a “significant policy response” in response to finance minister Kwasi Kwarteng’s huge tax cut plans.

But he added that the central bank wants to wait until its next scheduled meeting in November before making its move, quashing market speculations of a potential inter-meeting interest rate hike.

“For the near-term I think sterling’s going to remain pretty weak from here,” said Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia.

“It’s basically a crisis of confidence. It’ll be up to the UK government to resolve this … rather than Bank of England.”

Elsewhere, the yen last bought 144.53 per dollar, still near its lowest levels in years even after Japan’s intervention to prop up the fragile currency last week.

Still in Asia, another milestone fell on Wednesday, with as Chinese offshore yuan falling as far as 7.249 per dollar, the lowest level since such data became available in 2011.

There are signs policy makers are starting to get concerned. Reuters reported Tuesday that Chinese monetary authorities are asking local banks to revive a yuan fixing tool it abandoned two years ago as they seek to steer and defend the rapidly weakening currency.

 

(Reporting by Rae Wee; editing by Richard Pullin, Kim Coghill & Shri Navaratnam)