China's yuan firms on mid­point, Bei­jing vows to keep cur­rency sta­ble

The Pak Banker - - FRONT PAGE -

China's yuan edged up against the dol­lar on Fri­day and is set for a mild weekly gain af­ter the cen­tral bank fixed its daily mid­points stronger over the past week. Bei­jing has also taken fur­ther steps to con­trol the coun­try's cap­i­tal out­flows to sup­port the Chi­nese cur­rency. "The mar­ket re­mained flat­tish, with all eyes on the cen­tral bank's guid­ance of late," said a dealer at a Chi­nese com­mer­cial bank in Shang­hai.

"Even if there will likely be more forex de­mand next week, the yuan might not swing wildly," said the same trader in Shang­hai.

Traders ex­pected in­creased for­eign cur­rency pur­chases by cor­po­rates and in­di­vid­u­als next week to meet re­quire­ments ahead of the Lu­nar New Year, which falls on Feb. 8 this year.

The Peo­ple's Bank of China (PBOC) set the mid­point rate at 6.5516 per dol­lar prior to mar­ket open, 0.02 per­cent firmer than the pre­vi­ous fix 6.5528. The mid­point has been fixed firmer ev­ery day over the past week.

In line with the mid­point, the spot mar­ket opened at 6.5757 per dol­lar and was chang­ing hands at 6.5740 at mid­day, 0.02 per­cent firmer than the pre­vi­ous close. It is set to firm slightly by 0.1 per­cent for the week if it closes at the mid­day level. Chi­nese reg­u­la­tors have asked sev­eral do­mes­tic funds to post- pone is­su­ing new out­bound in­vest­ment prod­ucts, sources said, the lat­est at­tempt by au­thor­i­ties to stem cap­i­tal flight which is un­der­min­ing the value of the yuan and wor­ry­ing global in­vestors.

The PBOC has in­creased the fre­quency of open mar­ket op­er­a­tions be­tween Jan. 29 and Feb. 19 to main­tain liq­uid­ity dur­ing the Lu­nar New Year. Re­peated in­jec­tions by the cen­tral bank might de­lay ex­pected cuts in banks' re­serve re­quire­ment ra­tios (RRR), which would in­crease long-term base money in the sys­tem and so add pres­sure on the yuan to de­pre­ci­ate fur­ther.

Premier Li Ke­qiang also phoned In­ter­na­tional Mon­e­tary Fund (IMF) chief Chris­tine La­garde on Thurs­day to pledge Bei­jing would keep the yuan "ba­si­cally sta­ble" and im­prove com­mu­ni­ca­tion with fi­nan­cial mar­kets on the cur­rency. On Fri­day, the dol­lar in­dex stood at 98.628, af­ter it fell broadly on Thurs­day af­ter a plunge in U.S. durable goods or­ders that pointed to weak­en­ing U.S. growth. Off­shore yuan was trad­ing 0.65 per­cent softer than the on­shore spot at 6.6173 per dol­lar.

The on­shore yuan weak­ened 0.3 per­cent against the euro to 7.1984. It firmed 1.0 per­cent against the Ja­panese yen, hov­er­ing at 5.4842 to 100 yen af­ter the Bank of Ja­pan stunned mar­kets by adopt­ing neg­a­tive in­ter­est rates in its bold­est step yet to re­in­flate the long-lan­guish­ing econ­omy.

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