Yuan near record as central bank sets fixing at eight-month high
buy dollars in mid-December did liquidity return to the market.
Though the PBOC is no longer intervening on such a large scale, most traders believe that major state banks are still standing guard, buying dollars as necessary to keep the yuan clear of its top-end limit.
Though such theories are impossible to confirm, traders point to how the exchange rate has remained close to the band limit without touching it.
The central bank has stated repeatedly that it intends to reduce its intervention in the FX market.
Setting the midpoint stronger would relieve the PBOC and state banks of maintaining market liquidity while also keeping the exchange rate inside the band.
With signs that China's economic recovery is on firm footing while inflation may be on the rebound, the central bank may now be more comfortable allowing the currency to appreciate. But traders caution that a single day's strong midpoint is not enough to conclude that the central bank is shifting tack.
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