The People's Bank of China strengthened the reference price of the renminbi on Monday more than since January, reacting quickly after Jerome Powell's speech at the Jackson Hole conference caused the dollar to slide.

The People's Bank of China (PBOC) set the rate at 7.1161 yuan per dollar, down from 7.1321 on Friday, the strongest level since November.

According to Bloomberg, the dollar weakened after Powell opened the door to interest rate cuts, saying that the labor market is showing signs of stress even though inflation has not fully cooled. The dollar index fell by 0.8% following his speech.

The renminbi onshore has slightly increased, trading at 7.1605 yuan per dollar, after reaching 7.1593, the highest level since the end of July. But while the reference price has become strong, the renminbi has lost ground against a range of other currencies.

Bloomberg's index tracking the Chinese currency against its major peers shows a decline early in the session, even as a strong reference price was set on Monday.

The reference price has dropped below 7.12 for the first time since November last year, a sign that officials may be responding more strongly to the dollar's retreat and trying to keep the renminbi stable amid global re-export pressures.

Beijing is injecting liquidity into the market to ease tensions in the bond market

The PBOC has also moved aggressively to pump money into the system this month. Beijing added 600 billion yuan ($84 billion) through a series of one-year medium-term loans and three- and six-month reverse repos.

Bloomberg's calculations show that this is the largest monthly cash payout since January. The cash injection comes as interest rates surged in the recent 30-year government bond auction, with investors demanding the highest yields since December.

As the central bank adds cash, China's overnight repo rate falls to 1.35%, down seven basis points. Futures contracts linked to 30-year government bonds also surged to 0.7%, the largest daily increase since April.

The goal is to maintain easy funding conditions while borrowing demand remains high, and at the same time, avoid a fake sell-off in bond funds as retail money pours into stocks.

The PBOC has turned to its two main tools, MLF and reverse repos, after earlier policy adjustments this year provided them with greater flexibility. Officials are trying to balance this new cash push with the risk of withdrawals from banks, as retail investors pursue hot stocks and abandon savings accounts.

Chip stock ETFs are too hot as investors pour in

In the stock market, Chinese technology funds have received strong demand. The premiums on chip-related ETFs surged last week, signaling very strong buying activity. The STAR Chip Design ETF CPIC SSE rose 6.2% on Friday, far exceeding its historical average of just 0.1%.

Two other major chip funds, the STAR Chip Penghua SSE ETF and the 50 City Technology and Science Innovation ETF of China, are also trading at higher-than-usual premiums.

These premiums show that buyers have purchased these ETFs at prices higher than their net asset values, often a sign of speculative frenzy. This surge comes after news that DeepSeek's new artificial intelligence model has launched, boosting investor confidence in the semiconductor sector. There is also new belief that Beijing's technology favor will support domestic chip manufacturers.

This optimism has driven a significant boost in technology indices. The Star 50 Index, focusing on hardware stocks, rose 5.8% on Monday, bringing its total monthly growth to around 20%.

The CSI 300 index has risen over 1%, adding to last week's 4.2% increase. But the gap between prices and fundamentals is widening rapidly, with some market observers warning of overheating sectors.

Real estate stocks also surged, accompanied by hopes for more support from Beijing. China Vanke Group reached a six-month high, leading a 3% increase in the real estate index, the strongest gain in a month. Shares of Sunac China Holdings Ltd. and Longfor Group Holdings Ltd. also rose sharply. In Hong Kong trading, Vanke rose by up to 16%, and Sunac rose by up to 13%.

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