China's yuan fell to its weakest level in more than two weeks on Wednesday after the People's Bank of China set a third straight weaker daily fixing, a day after it ordered banks to hold more foreign currency in reserve to slow a rally that has lifted the currency about 5% against the dollar this year.

The onshore yuan dropped to 6.6832 per dollar in early trading, its weakest since Oct. 19, before recovering slightly to 6.6794 by late morning, Reuters reported. The offshore yuan fell about 0.13% to 6.6782. The slide ran against the broader market: the dollar fell against most major currencies on Wednesday as investors focused on the U.S. midterm elections, according to Reuters.

For investors in Asia who hold yuan assets or hedge yuan revenue, the two steps set out Beijing's position. Analysts said policymakers will accept a stronger currency, but not a fast-moving one.

PBOC Raises Its Foreign-Currency Reserve Ratio to 6%

The central bank said in a brief statement posted at 8:40 a.m. Beijing time on Tuesday that it would raise the reserve requirement ratio on financial institutions' foreign-currency deposits by 2 percentage points, to 6% from 4%, starting Nov. 15. It said the aim was to strengthen the management of foreign-exchange liquidity at financial institutions.

By requiring banks to hold more dollars in reserve, the rule leaves fewer for the onshore market. Reuters calculated from official deposit data that the change would withdraw about US$24 billion from the financial system, and Citic Securities reached the same estimate, according to the South China Morning Post. The step reverses a September 2023 cut that the PBOC made to stem the yuan's losses and capital outflows, The Standard reported.

"The PBOC is responding to strong market-driven yuan appreciation," said Marco Sun, chief financial market analyst at MUFG (China), according to Reuters. The reserve decision came a day after the central bank formally made its overnight rate its main policy rate.

It is the second time this year the PBOC has leaned against the yuan's gains. At the end of February it scrapped risk reserve requirements on foreign-exchange forward contracts to encourage dollar buying, the SCMP reported.

Markets reacted quickly. By late morning on Tuesday the onshore yuan had weakened to 6.6728 per dollar, its lowest since Oct. 23, and the offshore yuan went on to post its biggest one-day drop since May 15, Reuters reported.

Yuan Fixing Weakens Three Days in a Row

The daily midpoint, around which the onshore yuan may trade 2% in either direction, sent the same signal. The PBOC set it at 6.7180 per dollar on Wednesday, the weakest since Oct. 23 and 369 pips weaker than the Reuters estimate of 6.6811. Tuesday's fixing of 6.7150 was 661 pips weaker than forecast, the widest gap on the weak side since Sept. 10.

Data from the China Foreign Exchange Trade System show the fixing reached its strongest level of the year, 6.7138, on Oct. 30 and weakened in each of the next three sessions, through Wednesday. Wednesday's setting was still about 4.6% stronger than the final fixing of 2025, 7.0288 on Dec. 31, by Capital Times' calculation.

The market rate had run well ahead of the fixing. The onshore yuan touched 6.6523 on Oct. 30, its strongest level in more than four years, and ended October up 0.74%, according to Reuters. A gauge of the yuan against a basket of trading partners' currencies, the CFETS index, slipped to 103.75 based on Wednesday's fixing after touching a 52-month high on Tuesday, Reuters calculated. The index was still up about 5.9% this year.

Exporters' Dollar Sales Fuel the Yuan's Rally

The upward pressure comes from China's trade. The country's goods trade surplus reached a record US$938.1 billion in the first nine months of 2026, up from US$726.2 billion a year earlier, the SCMP reported. Foreign-exchange settlement at Chinese banks, in which customers sell foreign currency for yuan, rose 28.3% to US$2.38 trillion over the same period, while bank sales of foreign currency grew 10.8% to US$1.98 trillion, the newspaper said, citing official figures.

In a note on Tuesday, Citic Securities said a feedback loop had taken hold before the PBOC acted: expectations of a stronger yuan led exporters to convert dollars in bulk, which pushed the currency up faster. A Shanghai textile exporter with mostly U.S. clients told the SCMP he had paused converting his dollar receipts. Most of his contracts were signed last year, when a dollar bought more than 7 yuan, so every conversion now costs him money.

Analysts do not expect the reserve rule to end the trend. Lillian Li, a vice president at Moody's Ratings, wrote that tighter onshore dollar liquidity should "moderate rather than reverse the appreciation" because export demand remains strong, the SCMP reported. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said a country as dependent on exports as China can live with modest gains but may balk at a quicker climb, according to Reuters.

Analysts at ANZ said on Monday, before the reserve move, that they expected the yuan to keep appreciating, with China due to host the APEC Economic Leaders' Meeting later this month, Reuters reported.

Seasonal flows will test the policy soon. Exporters typically convert more of their foreign earnings toward year-end and before the Lunar New Year to cover bonuses and other costs, which tends to support the yuan in December and January, according to Reuters. The higher reserve ratio takes effect on Nov. 15, about two weeks before December, when Chinese exporters routinely pay off suppliers and cover wages and taxes, according to the SCMP.