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JPMorgan exits Yuan rally trade amid PBOC's surprise move
27 Feb
Summary
- PBOC cut currency forward risk reserves to zero, effective March 2.
- The offshore yuan weakened over 100 pips after the central bank's announcement.
- JPMorgan analysts tactically neutralised their long yuan position.
JPMorgan's analysts announced on February 27, 2026, that they are closing their long offshore Chinese yuan (CNH) position. This decision follows an intervention by the People's Bank of China (PBOC) to temper the yuan's recent rally. The PBOC stated it would reduce risk reserves for banks buying dollar forwards to zero from 20%, effective March 2. This move aims to encourage dollar buying and slow the yuan's ascent.
The offshore yuan experienced a dip, weakening past 6.85 per dollar after the PBOC's announcement. JPMorgan indicated that the risk reserve reduction should stimulate onshore dollar purchases via FX forwards. They view this early intervention as a signal that the PBOC is uncomfortable with the speed of the yuan's rise.
Despite this tactical shift, JPMorgan analysts maintain a positive medium-term outlook for the Chinese yuan (CNY) against foreign currencies. They anticipate continued international investment in Chinese stocks and Chinese corporations selling dollars. Should these trends persist, they foresee potential downward pressure on their USD/CNY targets, prompting a potential re-engagement in long CNY positions when conditions are more favorable.
