THE yuan ended Friday at an eight-month low against the U.S. dollar on speculation that the central bank is stepping up efforts to push it lower.
On the over-the-counter market, the dollar ended at 6.1450 yuan, the highest closing level since June 27, when it settled at 6.1490 yuan. The dollar hit a 10-month high of 6.1808 yuan Friday morning, at which the yuan was 0.9 percent lower against the greenback from Thursday’s closing of 6.1284 yuan, the biggest single-day drop since the 2005 revaluation.
The especially large move took the market by surprise, as the People’s Bank of China had set a slightly stronger reference rate for the yuan before trading started. The central bank set the dollar/yuan central parity rate at 6.1214, down from Thursday’s 6.1224.
Traders said the slump was highly likely as a result of the central bank’s intervention through State-owned banks — buying up the U.S. dollar and selling the yuan.
“I suspect that’s because of the central bank’s window guidance. It’s taking aim at carry trade,” said Liu Dong- liang, a senior analyst at the financial markets department of China Merchants Bank Co.
Speculative investors usually borrow the low-yielding dollar and convert it into high-yielding yuan, also with the hope of foreign exchange gains from yuan appreciation. “If the yuan drops sharply, these investors will incur huge losses,” said Liu.
The yuan has risen more than 30 percent since the 2005 revaluation, which ended decade-long peg, but since hitting a record high of 6.04 yuan to the dollar last month, it has lost roughly 2 percent.
The larger the number of yuan to the dollar, the weaker the yuan is.
(SD-Agencies)
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