PBOC Emphasizes Yuan Strength, Stability Following Currency Slide

Author: Chen Na
Posted: November 28, 2016

 

The Chinese yuan is showing strength and stability against the U.S. dollar compared with other currencies, a central bank official said in comments published shortly after the yuan hit an eight-and-a-half-year low against the dollar last week.
The yuan still “presents the characteristics of a stable and strong currency in the global monetary system,” Yi Gang, deputy governor of the People’s Bank of China, said in an interview with the official Xinhua News Agency that was posted on the central bank’s website on Sunday.
The central bank set the central parity rate’s midpoint at 6.9168 yuan per dollar on Friday. It was the currency’s weakest level since June 2008.
The yuan’s volatility had been mainly caused by unexpected international events in recent months such as Donald Trump’s surprise victory in the U.S. presidential election and expectations that the U.S. Federal Reserve will soon raise interest rates, Yi said.
The U.K.’s decision to leave the European Union and the Egyptian central bank’s move to let its currency float freely also contributed to the depreciation of the yuan, he added.
However, the yuan has fallen less than other non-dollar currencies, the deputy governor said.
The Japanese yen, the euro and the Swiss franc dropped 10.5%, 5.8% and 4.2% respectively against the dollar in October, while the yuan fell only 3.5%, Yi said.
Instead of referencing the yuan against the dollar, a basket of currencies “can better reflect the overall competitiveness of a country’s goods and services,” Yi said.

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Forex market analysts who have been watching the yuan’s value decline over the past year blamed the latest weakening on the specter of U.S. trade protectionism under a Trump administration.
The dollar has surged against a raft of currencies, including the yuan, in the past few months, largely based on the market’s belief that higher U.S. interest rates could see substantial dollar capital brought home by U.S. corporations, analysts say.
However, “the movement of the U.S. dollar going forward is uncertain, and we can’t rule out the possibility that changing market expectations will cause a decline in the dollar,” Yi said.
The Chinese central bank set the yuan’s midpoint rate at 6.9042 against the U.S. dollar on Monday, stronger by 126 basis points since Friday.
Wang Tao, UBS’ chief China economist, said in an interview with Caixin earlier this month that the private bank’s analysts expect the yuan to trade at around 6.8 by the end of the year, and further weaken to 7.2 by the end of 2017, based on the Chinese government’s commitment to letting the yuan devalue at a steady pace.

 

Read more: http://english.caixin.com/2016-11-28/101020044.html

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