(Bloomberg) — The yuan weakening past a level that China had been defending throughout December has returned the highlight to its day by day reference rate for the managed currency to gauge Beijing’s appetite to support it.

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Currency traders are waiting to see if the People’s Bank of China will set the so-called fixing at a level weaker than 7.2 per dollar, a closely watched line, around which the yuan is allowed trade in a 2% range. The PBOC maintained support on Friday, however the onshore yuan breached the psychological milestone of seven.3 per dollar for the primary time since late 2023, amid concerns over China’s economic struggles and a widening bond yield discount to the US.

China Lets Yuan Weaken After Defending 7.3 Per Dollar for Weeks

The fixing is Beijing’s preferred tool to guide yuan expectations and has been stronger than 7.2 because the US election amid pressure from a rising dollar and increasing predictions from analysts that the central bank would buckle. Allowing a breach risks sending a signal to traders that the PBOC is comfortable with further yuan weakness, while holding the road suggests it might dig in for a fight with currency stability as a goal.

While the yuan has weakened against the dollar, it climbed to the best since 2022 versus trading partners’ exchange rates because of this of Beijing’s control. That’s a move that will undermine the nation’s export competitiveness.

China Hurts Its Exporters by Keeping Yuan Strong Versus Peers

China’s currency traded just over the 7.32 per dollar level onshore on Friday.

“All eyes are on PBOC Monday and the fixing for the Chinese yuan,” said Bob Savage, head of markets strategy and insights at BNY in Latest York. “Market risk is now for 7.45 or higher dollar against yuan.”

–With assistance from Iris Ouyang, Wenjin Lv and Neha D’silva.

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