New | Offshore yuan slides after record two-day surge, shaking off strongest fixing in 11 years

The offshore yuan slid on Friday morning after scoring its biggest two-day gain in history, despite the People’s Bank of China strengthening the currency fixing by the most since it removed a fixed dollar peg in July 2005.

In the meantime, the yuan’s borrowing costs surged to a one-year high in Hong Kong, with the overnight Hong Kong interbank offered rate for offshore yuan fixed at 61.333 per cent.

The offshore market briefly slid 0.8 per cent to a low of 6.841 against the US dollar, the biggest drop in six months. It was changing hands at 6.8231 per dollar at 11am, still down 0.5 per cent from a night trading close of 6.7889 in the previous session.

Over the past two days, the offshore yuan soared a combined 2.4 per cent, the biggest two-day gain ever. The record surge came after various media reports said the Chinese authorities had stepped up intervention in the market to back the yuan and were considering new measures to tighten capital controls.

Possible plans include selling US Treasuries in 2017, if necessary, to defend its own currency and ordering state-owned enterprises to temporarily convert some foreign-currency holdings into yuan under the current account.

“Chinese officials continue to squeeze liquidity in the offshore yuan market,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman.