Chinese State Banks Move to Curb Yuan Surge With Targeted Dollar Purchases

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State Banks Step In as Yuan Hits 14-Month High

China’s largest state-owned banks have been actively purchasing U.S. dollars in the onshore spot foreign exchange market this week in a concerted effort to temper the pace of the yuan’s appreciation, according to people familiar with the activity.

Their intervention coincided with the yuan climbing to a 14-month high on Wednesday, continuing a recent pattern in which state lenders act to counter rapid gains in the Chinese currency in order to smooth its advance. [CNY/]

Unusual Strategy: Holding Dollars Instead of Swapping

Market sources said that, unlike their more typical approach, these banks did not appear to be channeling the newly purchased dollars into the swap market. The shift in behavior was interpreted as an intentional move to restrict dollar liquidity, thereby making it more expensive for investors to maintain long positions in the yuan.

Following these operations, back-end dollar/yuan swap points declined, indicating a deeper negative carry for holding yuan. The one-year tenor fell from a one-month high that had been reached last week.

One source said the objective of the state banks’ actions was to slow the speed of the yuan’s rally rather than to change its upward direction. All of the people who spoke about the activity requested anonymity because they are not authorized to discuss the matter publicly.

News wires report Chinese state-owned banks were bidding for USD earlier today. With the PBOC encouraging a weaker greenback through the setting its references rate at new lows, can it be that the Chinese banks have commercial activity to conduct and it is not intervention?

— Marc Chandler (@marcmakingsense) December 3, 2025

Impact on Positioning and Carry

More gradual appreciation of the yuan makes it less attractive for investors to keep long positions, as the trading gains may not be sufficient to offset the interest rate differential between higher-yielding U.S. dollars and the lower-yielding yuan.

State-owned banks at times operate on behalf of the People’s Bank of China, but they can also transact for their own books or execute orders for clients. The central bank did not immediately respond to a request for comment.

Yuan Performance and Policy Signaling

The Chinese currency has risen about 3.3% against the dollar so far this year and on Thursday appeared poised for its largest annual increase since the pandemic year of 2020.

Authorities have supported the appreciation of the closely managed currency through signaling that has been viewed as tacit approval. The central bank has repeatedly set the midpoint of the yuan’s daily trading band stronger than market forecasts, contributing to the currency’s strength.

At the same time, state banks have moderated the pace of appreciation. This has fueled speculation that policymakers are seeking a steady, controlled rise in the yuan, which could discourage abrupt foreign exchange conversions by exporters and help convey a sense of stability that may bolster the currency’s international usage.

Latest Market Moves and Midpoint Fixing

Dollar purchases by state-owned banks continued on Thursday alongside what traders described as an unexpectedly weak official midpoint fixing. That fixing pushed the yuan off its 14-month peak, with the currency trading about 0.1% weaker at 7.0694 per dollar.

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