Yuan Strengthens After PBOC Raises Fixing by Most Since November

The yuan headed for the biggest two-day gain in a month after China’s central bank raised its reference rate...

The yuan headed for the biggest two-day gain in a month after China’s central bank raised its reference rate by the most since November following a decline in the dollar.

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 to a five-month low on Thursday, extending its decline after the Federal Reserve Wednesday scaled back its forecasts for interest-rate increases this year.

The yuan strengthened 0.21 percent to 6.4641 a dollar as of 9:56 a.m. in Shanghai, according to China Foreign Exchange Trade System prices. That extends its two-day gain to 0.9 percent, the most since Feb 15. The currency traded in Hong Kong was little changed. A Bloomberg replica of the CFETS RMB Index, which China uses to measure the yuan’s performance against 13 currencies, fell to 98, the lowest since November 2014.

“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.

“Today’s fixing was a pure dollar move,” said Khoon Goh, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd., adding that he wasn’t surprised by the level. Addressing the yuan’s move against the currency basket, he said that other currencies in the index have “strengthened more against the dollar than what the yuan has, so that’s why the yuan has weakened against the basket.”

–With assistance from Saijel Kishan To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Robin Ganguly, Sandy Hendry

By: Bloomberg News

©2016 Bloomberg News

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