The US dollar slumped across the board following the news that the Chinese central bank would increase a reserve requirement for trading foreign currency forwards to 20% from 0%. The move is aimed at helping the China’s currency erase some of its losses, and may also help equity markets. The decision will come into effect on 6 August. The bank has also pledged to keep the currency stable taking counter-cyclical measures. Let us notice that the PBoC decided to remove a reserve requirement in September last year when the yuan was strengthening substantially against the US dollar. The higher reserve requirement the smaller incentive to buy the US dollar in forward transactions.

The US dollar slumps across the board following the PBoC’s announcement. Source: xStation5