Chinese currency Yuan has been adjusted by a huge margin against US dollar. It has been one of the biggest adjustments in the recent times.
Yes, you have heard right – China has adjusted Yuan 0.52% stronger against the US dollar. It’s been the biggest adjustment since November last year. What prompted China to do this? Well, according to the Federal Reserve, interest rates are supposed to rise at a slower pace against the prediction and this has definitely contributed to this move. The change was so steep was that it was 0.52% stronger compared to the previous day. Central banks in China fixed Yuan’s midpoint at 6.4628 to the dollar. The Yuan has never been this firm since December 16 last year.
As we all know, Chinese currency de-pegged from the USD at 2005. And this has to be the 3rd biggest appreciation for. Every day, Chinese central bank fixes the exchange rate.
Well, for analysts, it wasn’t big news as they have been expecting this since several currencies including Euro, Yen, and currencies from developing countries rose steeply against the USD a day ago. As you can see, it contradicts from the Chinese central bank’s move back in January. Back then Yuan faced sharp fall and that resulted in a crisis in the stock markets all over the world.
What did market analysts say? Well, they were skeptical for obvious reasons. Did the Friday fix helped in offshore markets? It definitely did. The results were immediate. But that didn’t last since it reported a 0.3% weaker at the end of the day. If you want to learn more about the Pegging Of The Chinese Yuan, Click Here.
By the way, what resulted in this sudden surge of Asian currencies against the USD? Risk appetite played a big role for sure. What does a lower fix mean? That indicates the Chinese currency is appreciating against the USD. As we can see, the Chinese currency has to deal with less depreciation pressure now. This is definitely going to be helpful. The recent turn of events can be considered as the result of weakness experienced by USD. That said the confusion is still there as far as the driving force behind these fixes are concerned.
Devaluation of Yuan
- Devaluation of Yuan had a ripple effect on stock markets across the globe. The 1.9% devaluation back in August led to some serious repercussions in the world market.
- As far as the exchange rates are concerned, People’s Bank of China reiterated that they would let market forces to play their part in the determining the rates.
- Back in December, the PBOC said that they will be setting the level of Yuan after a careful study of 13 currencies.
How did they arrive at the fix?
Recently, the PBOC made it very clear that they want to keep Yuan stable against many currencies. They used the currencies compiled by the IMF and the Bank for International Settlements while setting the Yuan’s value on a daily basis. Even though they considered several currencies, their sole focus on the USD. Even though they haven’t claimed that they are focusing on USD, it is apparent that USD is the main focus here. As you can see, Yuan has been stable against the USD of late and that could be a sign of them focusing USD.