China’s central bank raised the yuan’s reference rate by the most since November after the dollar sank to a five-month low overnight.
The People’s Bank of China boosted its fixing by 0.51 percent to 6.4628 against the greenback. The Bloomberg Dollar Spot Index fell 1.1 percent Thursday, extending its decline after the Federal Reserve Wednesday scaled back its forecasts for interest-rate increases this year.
The yuan traded in Hong Kong rose 0.06 percent to 6.4521 a dollar as of 9:21 a.m. on Friday. The onshore currency, which strengthened 0.7 percent on Thursday to the highest this year, will begin trading at 9.30 a.m. in Shanghai.
“The market is now expecting the Fed to raise borrowing costs fewer times this year, which eases capital outflow pressures from emerging markets and supports Asian currencies including the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “But the PBOC won’t likely allow significant appreciation of the yuan because a currency that’s too strong will hurt China’s exports and economic fundamentals.”
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The Chinese currency has returned to a more “normal, rational and fundamentals-driven” trend, and the nation doesn’t need to use foreign-exchange policy to boost trade, PBOC Governor Zhou Xiaochuan told reporters on March 12. The central bank, soon after it shocked global markets by devaluing the yuan in August, said it was moving to a more market-based system for setting the daily fixing.
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