Yuan sinks to weakest in 8 months
THE yuan hit the weakest in eight months against the US dollar yesterday as demand for the dollar rose after investors were dampened by political uncertainties in Europe.
The yuan closed at 6.2548 against the US dollar in Shanghai yesterday after briefly sinking to the lowest the currency is allowed to be traded off the reference rate set by the Chinese central bank.
It was the first time the band of 2 percentage points was fully breached as the People’s Bank of China yesterday set the central parity rate at 6.1384, and the trading touched as low as 6.2569 in the morning session.
Yesterday’s closing also marked the yuan’s largest two-day drop since 2008 as it fell over 0.6 percent against the dollar within two trading days since last Thursday.
Economists said the yuan will face depreciation pressure as demand for the US dollar drives up valuation of the greenback.
“The US dollar will continue to strengthen in the near term as investors seek a haven to hedge uncertainties in the eurozone,” said Hao Daming, an analyst with Huarong Securities.
However, the yuan yesterday firmed 1.3 percent against the euro before closing at 7.0256 per euro, up 0.55 percent from Friday’s rate.
The yuan has firmed against the euro by over 4 percent after the European Central Bank said it would pump as much as 1.1 trillion euros (US$1.2 trillion) into the eurozone economy to boost growth.
But Hao said the “trillion-euro stimulus plan could have only limited impact on the economy and could encourage Japan to further loosen its monetary policy, boosting yuan assets for international investors.”
There was more gloom after Greeks voted for a radical leftist party in weekend polls, which has raised a possible Greece exit from the 19-nation euro bloc and defaulting its euro debts.
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