China vows to support yuan through crisis, bouncing the embattled currency from a 16-year low

• The Chinese yuan dropped to a 16-year low versus the dollar on Friday amid economic headwinds.
• The currency bounced Monday after China's central bank moved to stabilize the currency.

The Chinese yuan bounced away from its 16-year low on Monday as China's central bank announced it would continue to support the embattled currency through its prolonged slump.

In a statement, the People's Bank of China issued a stark warning to traders speculating against the note, which sent the yuan soaring 1% — its largest one-day gain since March.

"We will not hesitate on taking actions when necessary to firmly correct the one-sided and pro-cyclical market moves, to resolutely address the actions which disturb market order, and to unswervingly avoid the overshooting risks in the exchange rate," the PBOC said.

The central bank also said it will intervene to correct any major moves in the currency whenever needed and that it is confident in keeping the yuan stable in the coming months, Bloomberg reported.

This statement added to Friday's intervention, which saw China roll out other measures designed to prop up the struggling currency. The PBOC said that it would slash the amount of foreign currency deposits financial institutions are required to hold from 6% to 4%, beginning September 15.

The yuan has struggled against the dollar this year, having fallen around 5% year-to-date, dragged down by signs that China's post-COVID recovery has failed to materialize.

It has, however, remained stable against a different basket of currencies, the PBOC said, which may indicate signs of dollar strength taking precedence over yuan weakness.

More broadly, China is facing a nightmare cocktail of economic headwinds, including depressed manufacturing figures, rocketing youth unemployment, and an imploding property sector.

Economists remain pessimistic on the Asian nation's economic prospects — forecasters polled by Bloomberg have cut their growth expectations for both 2023 and 2024.