Today was a big day in China’s currency markets, with the yuan depreciating the most against the US dollar since August 2015, before stabilizing. The sudden volatility is indicative of a reduction in PBOC intervention to manage the exchange rate, confirmed via several proxies, including the preliminary 4Q 2017 balance of payments data released today. Divergent monetary policy trajectories in China and the United States increase the significance of the PBOC’s new approach, suggesting additional yuan weakness ahead.
