Yuan near record as central bank sets fixing at eight-month high
China's central bank set its strongest midpoint in eight months on Tuesday after a fall in the dollar the day before, pushing the yuan close to its all-time high and raising the prospect of further appreciation.
The yuan changed hands at 6.2235 per dollar in early trade, a whisper away from late November's record high of 6.2223. The currency had retreated to 6.2258 near midday, 0.06 percent firmer than Monday's close.
The central bank's midpoint of 6.2804 on Tuesday was its strongest since May 2012, though still only 0.1 percent stronger than Monday's fix of 6.2872. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 1 percent from the midpoint it sets each morning.
The stronger central bank fixing came in response to an overnight fall in the dollar against the euro and other currencies, as investors anticipate a continuation of easy monetary policy from the Federal Reserve.
The PBOC typically fixes the yuan firmer when the dollar index falls overnight. But traders say Monday's unusually strong response to that fall may also signal the PBOC's willingness to permit some yuan appreciation following six weeks during which authorities have capped the currency's rise.
The yuan hit the top-end limit of its daily trading band nearly every day in November and early December, creating a deadlock during which trading volume evaporated as dollar bids were absent from the market.
Only when major state banks – apparently acting on behalf of the PBOC – stepped in to
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