China’s yuan rose sharply on Tuesday, gaining a quarter of a percentage point from its previous close to 6.8623 to the US dollar shortly after 9:30 a.m. It was the biggest gain in a month as the central bank acted to break the bearish grip on the currency after the US presidential election. The offshore yuan exchange rate in Hong Kong, known as CNH, also strengthened to 6.8670 to the dollar on Tuesday morning, from 6.8757 as of 4:30 p.m. local time on Monday afternoon. The jump in the yuan came after the People’s Bank of China raised the mid-point trading band vis-a-vis the US dollar by 295 basis points to 6.8575, the most in six months. Meantime, a shortage of yuan in Hong Kong pushed the overnight borrowing cost on the currency to 12.38% on Monday. High interbank rates for the yuan make it prohibitively costly for traders to initiate or maintain a short position on the currency, a strategy that profits from a fall in the yuan. Bets against a depreciating yuan gathered momentum as the US dollar gained on the back of Donald Trump’s election victory, as well as concerns about capital flight from China as witnessed in the declines in the country’s foreign exchange stockpile and deposit of the currency in offshore markets. As can be seen in the following chart, the CNH has been highly correlated with emerging market currencies since the US election. Previous spikes in yuan borrowing rates in Hong Kong occurred this January and September, preceded by bearish sentiment toward the yuan that pushed the offshore exchange rate lower than the official onshore rate, or CNY. When that happens, the spread between CNY and CNH widens and the PBOC evidently allows the Hong Kong overnight rate to rise to discourage offshore selling of the yuan. As of Tuesday, the wider spread between the two rates that started in late November had nearly vanished. The onshore yuan versus dollar rate slumped to a eight-year low of 6.9330 on November 24. On that day in the offshore market, it took as much as 6.9652 yuan to buy one US dollar, with many in the market at the time saying it was set to break the psychological “7” mark. That expectation has now receded, but the next widely watched indicator will come on Wednesday when China will publish its foreign exchange balance for November. The market expects a further loss of around 30 billion US dollars. The question will be are the recent PBOC moves enough to shore up the yuan and stem the capital flows out of the country. China’s foreign exchange reserves have declined by a third from the peak of nearly US$4 trillion since 2015.