SHANGHAI: China’s yuan rebounded sharply against the dollar on Monday, propped up by suspected selling of dollars by state-owned banks and a strong official guidance set by the country’s central bank.

Sources say China’s major state-owned banks were seen selling dollars for yuan in onshore markets on Monday to stabilise the currency after it dropped to a four-month low on Friday.

The yuan’s weakening beyond the key 7.2 per dollar level at the end of last week had also caused wobbles in China’s stock market.

However, it was unclear if Monday’s dollar selling meant authorities were continuing to defend the 7.2-level or simply trying to slow down the yuan’s decline.

China’s onshore yuan firmed as much as 388 pips against the dollar in morning trade, on track for the largest daily gains in nearly three months.

Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.0996 per US dollar. That was 1,271 pips firmer than Reuters estimate, the biggest such discrepancy since November 2023, signaling China’s discomfort with the recent yuan weakness.

The offshore yuan firmed nearly 200 pips after the release of the fix.