JPMorgan said on Friday it has closed its long offshore Chinese yuan position after the People’s Bank of China (PBOC) announced a sharp cut in the reserve requirement for foreign exchange forwards. The PBOC will reduce the risk reserves banks and financial firms must set aside when buying foreign currency via forwards to zero from 20%, with the change taking effect on March 2.
The announcement coincided with a pullback in the freely traded offshore yuan, or CNH, which had rallied 7.5% against the dollar since the start of 2025. Markets moved quickly after the PBOC's statement - CNH slipped more than 100 pips and traded past 6.85 per dollar.
In a research note, JPMorgan's analysts explained their decision. Having maintained CNH long positions since November, they said they would tactically neutralise the exposure and take profits on their CNH/SGD longs. The bank argued that the new rule is likely to encourage an increase in dollar buying from onshore investors using FX forwards, a market that, they noted, has contracted significantly since 2022.
The analysts described the regulatory change as an "earlier-than-expected move" that corroborates the view that the yuan's appreciation might have extended beyond what the PBOC finds comfortable. They flagged that this development has raised questions about whether the current bullish momentum in the yuan can be sustained in the near term.
JPMorgan also noted that the offshore yuan had appreciated around 4.2% since early November. The bank's statement reiterated the technical distinction between the two currency markets in which China's currency trades: onshore CNY is the restricted version used within the mainland, while offshore CNH is the freely traded counterpart used in centres such as Hong Kong.
Although the bank executed a tactical exit, it stopped short of abandoning its broader stance. JPMorgan's analysts said they retain a bullish bias over the medium term for CNY FX, driven by expectations that international investors will continue buying Chinese equities and that Chinese corporates will keep selling dollars. They warned that if those dynamics persist, it could exert downside pressure on JPMorgan's medium-term USD/CNY targets. The analysts added they would consider re-entering outright long CNY positions if market levels become more favourable.
Market context and note
The move to zero risk reserves on FX forwards is effective March 2 and is intended to alter the mechanics of onshore participation in forward markets. JPMorgan's tactical profit-taking reflects a recalibration of risk in response to the PBOC's decision and recent strong CNH performance.