Chinese companies slowed foreign currency sales in July as yuan support weakened

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Chinese companies slowed their foreign currency sales in July, with net sales falling to an eight-month low, signaling that a key support for the yuan is fading amid a weak domestic economy. Net foreign currency sales by Chinese banks on behalf of clients fell by more than half from June to 25.2 billion dollars, the lowest level since November 2025, according to data from the State Administration of Foreign Exchange. Meanwhile, the yuan has strengthened only 0.7 percent against the dollar since the end of June, after surging 3 percent in the first half of the year. Geoffrey Yu, senior strategist at BNY, said people are willing to hold foreign currencies for carry trades because yuan returns are low. The yield on China's 10-year government bonds fell below 1.70 percent for the first time in about a year this month. China's central bank has also tried to temper expectations for yuan appreciation by setting its daily reference rate significantly weaker than market forecasts since late July. The balance of new foreign exchange forward contracts swung back to a net foreign currency purchase of 4.7 billion dollars in July, tilting toward the dollar over the yuan for the first time since January 2025. Wang Yifeng, chief financial industry analyst at Everbright Securities, said dividend payments supported foreign currency demand in July, but that demand may ease after August.

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