China yesterday raised the exchange rate for the yuan against the US dollar by 0.92 percent from the previous day, the biggest one-day increase in more than 11 years.
The People’s Bank of China (PBOC), which has been battling to shore up the sagging yuan, fixed it at 6.8668 to the greenback, according to the China Foreign Exchange Trade System, which operates the national foreign exchange market.
The move comes as the yuan had flirted lately with the 7.0 to the dollar mark, a threshold not crossed in more than eight years. China only allows the tightly controlled yuan to rise or fall 2 percent on either side of the daily fix, to prevent volatility in the currency, which is near its lowest levels in eight years. By 7:06am GMT, onshore spot yuan was trading at 6.9334 per US dollar, down 0.7 percent from late Thursday.
The Chinese currency, however, is on track to log its best week in more than a month.
The yuan has been under pressure from uncertainty over the health of the world’s second-largest economy, massive capital outflows seeking better returns abroad, and the sharp rise in the US dollar following Donald Trump’s election as US president and anticipation of further US interest rate hikes.
China’s currency reserves data due this week is also expected to show reserves are close to falling below the critical US$3 trillion figure, which would partly explain the authorities’ desire to stem capital outflows and bets that the currency will keep depreciating.
The exchange rate hike was expected by many analysts after a two-day rally in the yuan in offshore trading that sparked speculation of official Chinese intervention in support of the yuan.
“Judging from the speed of the yuan’s appreciation, the PBOC may have intervened to prop up the exchange rate,” Kenix Lai (賴春梅), a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd (東亞銀行), told Bloomberg News. “The PBOC is expressing its strong determination to keep the currency stable and is seeking to restore confidence.”
China said last week it would almost double the number of foreign currencies it uses to determine the yuan’s official value, thereby diluting the US dollar’s role, and has imposed a range of measures to curb capital flight abroad.
The equivalent of about US$1 trillion was transferred out of China in 2015 and another US$690 billion in the first 10 months of last year, according to Bloomberg Intelligence estimates.
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