Chinese Yuan Retreats From 27-Month High as Officials Tolerate Currency’s Appreciation

The Chinese yuan is retreating from its highest level against the US dollar in 27 months, despite officials revealing they will tolerate the currency’s appreciation against the greenback – for now. The acceptance of the yuan’s enormous climb has signaled that policymakers are prepared to potentially alter the currency’s strategy in the global economy, fueling its aspirations to make the yuan a global reserve currency that rivals the buck and other counterparts.

Wang Chunying, the spokeswoman for the State Administration of Foreign Exchange (SAFE), stated that the yuan has stabilized better than expectations, adding that it has remained highly flexible, which suggests that the yuan will continue to trade “at a reasonable and balanced level.”

Overall, the appreciation of the yuan is relatively moderate. Since the beginning of this year, the yuan has appreciated by 4.5 per cent against the US dollar, the US dollar index has fallen by 4.3 per cent, the euro has appreciated by 5.9 per cent against the US dollar, and the Japanese yen has appreciated by 4.1 per cent against the US dollar. In comparison, the performance of the yuan is basically in line with major currencies.

Under the combined effects of internal and external factors, the yuan exchange rate is expected to continue to maintain two-way volatility and basic stability at a reasonable and balanced level in the future.

This sent the yuan rising against the US dollar on Friday before paring its gains to kick off the trading week.
The People’s Bank of China (PBoC) has officially ended its foreign exchange intervention, allowing the yuan to move based on the market. Although the central bank does set the midpoint exchange rate for the yuan, the currency performs based on investors.
Zhu Jun, the director-general of the PBoC’s international division, said at the Bund Summit in Shanghai on Saturday that fiscal and monetary policy can better facilitate market-oriented reforms. This, Zhu noted, could involve improving bilateral currency swap agreements to increase cross-border trade and investments.

As everybody knows in the past, the internationalization of the RMB (yuan) sticks to the market principles.

The role of the authorities was mainly focused on removing the policy obstacles for the free use of the currency. At this moment, we think there are some kinds of complications in the domestic and overseas situations.

Still, the speed of the yuan’s gains has triggered a debate in the nation’s finance industry. At the same time, the yuan’s strength does indicate the world’s growing confidence in the world’s second-largest economy and its economic rebound in the aftermath of the COVID-19 public health crisis.
The yuan’s recent performance has prompted market analysts to raise their forecasts, projecting an exchange rate against the greenback to trade at 6.5 next year.
The Communist Party of China will hold its annual meeting this week. For the next few days, the government will discuss a wide variety of issues, including Beijing’s next five-year economic plan and the yuan’s more than two-year high.
On the data front, the year-to-date industrial profits and the manufacturing and non-manufacturing purchasing managers’ index (PMI) readings will be released toward the end of the week.
The USD/CNY currency pair rose 0.39% to 6.7131, from an opening of 6.6868, at 13:18 GMT on Monday. The EUR/CNY fell 0.06% to 7.9277, from an opening of 7.9315.
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