USD/CNH recovers above 6.8500 as PBOC cuts FX risk reserve ratio to 0%

The USD/CNH pair recovers some lost ground to near 6.8505 during the early European session on Friday. The Chinese Yuan (CNH) weakens against the US Dollar (USD) as China moves to rein in the currency’s strength by scrapping an extra fee for betting against it in the derivatives market.

The People's Bank of China (PBOC) announced on Friday that it will cut the foreign exchange risk reserve ratio from 20% to 0% on foreign-currency forward contracts, starting March 2. The Chinese central bank said in the statement that this move will “support companies’ management of foreign-exchange risks.”  

The PBOC also said that it will keep the Chinese Yuan exchange rate stable at reasonable, equilibrium levels and guide financial institutions to improve FX hedging services. The CNH edges higher against the Greenback following the announcement.

The Bureau of Labor Statistics (BLS) will publish the US Producer Price Index (PPI) report for January later on Friday. Economists expect a moderate cooling of wholesale inflation. The headline PPI is expected to show an increase of 2.6% in January, while the core PPI is estimated to show a rise of 3.0% during the same period. Any signs of hotter inflation in the US could delay the US Federal Reserve (Fed) interest rate cuts and boost the USD in the near term.