Finance
JPMorgan takes profit on Chinese yuan rally
Published by Global Banking & Finance Review®
Posted on February 27, 2026
2 min readLast updated: February 27, 2026
Quick Summary
JPMorgan closed its long offshore yuan (CNH) trade after the PBOC said it will cut the FX forwards risk-reserve requirement to 0% (from 20%) effective March 2, a move aimed at cooling the yuan’s rally. The policy lowers the cost of using forwards to buy dollars, encouraging more hedging and speculat
JPMorgan Takes Profit on Offshore Yuan Rally After PBOC Reserve Cut
Main Analysis
JPMorgan Closes Long Offshore Yuan Position
LONDON, Feb 27 (Reuters) - JPMorgan's analysts said they were closing their long offshore Chinese yuan position after the country's central bank cut the cost of buying dollar forwards on Friday in a bid to tame the yuan's recent rally.
PBOC Cuts FX Forward Risk Reserves
The People's Bank of China said it would cut to zero from 20% the risk reserves that banks and financial firms must set aside when purchasing foreign exchange via currency forwards, effective March 2.
Offshore Yuan Reaction and Recent Performance
Immediate Market Move After Announcement
The offshore yuan - up 7.5% against the dollar since the start of 2025 - weakened more than 100 pips after the announcement, slipping past 6.85 per dollar.
JPMorgan Research Note: Tactical Neutralisation
"Having run CNH longs since November, we tactically neutralise the position while taking profit on our CNH/SGD (offshore yuan vs Singapore dollar) longs," JPMorgan's analysts said in a research note.
"The new (risk reserves) rule should prompt an uptick in dollar buying from onshore investors via FX forwards, which have collapsed meaningfully since 2022."
Assessment of PBOC Comfort Level and Momentum Risks
They added the "earlier-than-expected move" reinforced the view that the yuan's rise had "probably gone a bit further than what the PBOC is comfortable with".
"This has also raised concerns of whether the bullish momentum in the yuan is running out of steam, at least over the short run."
The offshore yuan has risen around 4.2% since early November.
Understanding CNY vs CNH
China's currency exists in two forms: the onshore CNY, the restricted, mainland Chinese version, and the offshore CNH, the freely traded version used in centres such as Hong Kong.
Medium-Term Outlook Remains Bullish
Investor Flows and Potential Impact on USD/CNY Targets
Despite the tactical shift, JPMorgan's analysts said they retained "a bullish bias over the medium term for CNY FX", expecting international investors to keep buying Chinese stocks and Chinese corporates to continue selling dollars.
"If this pans out, it could risk downside to our medium-term USD/CNY targets," they said. "As a result, we would be inclined to re-engage in outright long CNY positions if/when levels become more conducive."
(Reporting by Marc Jones. Editing by Mark Potter)
Key Takeaways
- •Policy signal: Cutting the forward FX risk-reserve ratio to 0% revives a tool last used in 2022 and is widely read as an attempt to slow the yuan’s pace of appreciation by making it cheaper to position/hedge via USD/CNY forwards. (caixinglobal.com)
- •Market mechanics: The reserve rule works by forcing banks to set aside funds against forward FX transactions; removing it reduces banks’ costs and can translate into cheaper forward pricing for corporates/investors seeking to lock in future dollar purchases. (chinadailyasia.com)
- •Trade framing: JPMorgan’s profit-taking reflects a near-term policy-induced headwind to CNH strength, even as the broader PBOC approach remains to manage the exchange rate for ‘stability’—suggesting two-way risk rather than a one-way appreciation trend. (ft.com)
References
Frequently Asked Questions about JPMorgan takes profit on Chinese yuan rally
1Why did JPMorgan close its long offshore yuan position?
JPMorgan said it tactically neutralised its CNH longs and took profit after the PBOC cut the cost of buying dollar forwards, a move aimed at taming the yuan’s rally.
2What change did the PBOC announce for FX forward risk reserves?
The PBOC said it would cut to zero from 20% the risk reserves banks and financial firms must set aside when purchasing foreign exchange via currency forwards, effective March 2.
3How did the offshore yuan react to the PBOC announcement?
The offshore yuan weakened more than 100 pips after the announcement, slipping past 6.85 per dollar.
4What is the difference between CNY and CNH?
China’s currency exists in two forms: onshore CNY, the restricted mainland version, and offshore CNH, the freely traded version used in centres such as Hong Kong.
5Does JPMorgan still expect the yuan to strengthen over the medium term?
Yes. Despite the tactical shift, JPMorgan said it retained a bullish bias over the medium term for CNY FX, expecting international investors to keep buying Chinese stocks and Chinese corporates to continue selling dollars.
