**PBoC Signals Stronger Yuan Despite Economic Headwinds**
The People’s Bank of China (PBoC) set its USD/CNY fix at 7.0825 this morning, marking the seventh consecutive week it has signaled a preference for a stronger yuan (CNY). Since the end of September, the USD/CNY pair has fallen by a total of 0.5%, indicating a firmer CNY. While this change may appear modest, it’s important to note that the trade-weighted US Dollar (USD) also gained around 1% over the same period. As a result, the yuan appreciated not just against the USD, but also against a broader basket of trading partners’ currencies, as observed by Commerzbank FX analyst Volkmar Baur.
### Yuan Strength Amid Economic Weakness
At first glance, this appreciation is surprising given the backdrop of China’s ongoing economic challenges. September’s figures already reflected a lackluster economic performance, and data released this morning suggests further deterioration. Industrial production rose by 4.9% year-on-year in October, but this was well below both the Bloomberg consensus (5.5%) and the previous month’s figure (6.5%).
Other key economic indicators painted an even weaker picture. Retail sales managed to stay in positive territory, rising by 2.9%. However, the crisis in the property sector not only persists but appears to be intensifying. Property sales plunged about 20% year-on-year in October, while construction starts were down nearly 30%.
### Widespread Weakness in Investment
What stands out is that investment weakness is no longer confined to real estate. Fixed asset investment, which grew more than 4% in the first quarter, has since dropped sharply. While the Chinese statistics office only releases aggregate data for the year to date, estimates suggest that investment in October alone declined by roughly 10% compared to last year. The situation is even more dramatic in manufacturing: after posting a first-quarter increase of 10%, October’s figures imply a 10% year-on-year decrease.
### Implications for the Yuan and Global Markets
From a currency perspective, these economic trends could have significant global impacts. While industrial production remains relatively stable, slumping retail sales and investment figures highlight weak domestic demand. Consequently, there are two main options for dealing with surplus supply: either add it to inventory in hopes of a demand recovery, or increase exports to find buyers abroad.
If Chinese exports rise and the current account surplus grows, economic theory suggests that greater global demand for Chinese goods would support a stronger yuan, as foreign buyers need to purchase the currency. From this standpoint, it’s actually surprising the yuan hasn’t appreciated even more sharply in recent weeks.
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*Source: Commerzbank FX analysis and official Chinese economic data.*
https://bitcoinethereumnews.com/finance/stronger-cny-despite-weaker-data-commerzbank/
