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April 17, 2012

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Home » Business » Economy

Stronger dollar triggers decline in yuan

THE yuan weakened the most in a week yesterday as the US dollar strengthened amid worries over rising yields of Spanish and Italian government bonds.

The yuan ended at 6.3150 to the dollar, down 0.3 percent against from the central parity rate yesterday, the first day of trading after the trading band was widened to 1 percent. The Chinese currency had failed to test even the previous 0.5 percent range in daily trading.

The People's Bank of China yesterday set the yuan's central parity rate at 6.2960 against the US dollar, 81 basis points weaker from last Friday.

The yuan weakened after the US dollar index, which measures the greenback's value against a basket of currencies, gained 0.2 percent after the yields in the Spanish and Italian government debts rose, renewing worries about the European crisis.

"A stronger US dollar in the past week is the main reason for the yuan's weakening," said Zhao Qingming, a senior researcher at China Construction Bank. "Widening the band is a technical move, and the significance is yet to be shown."

Yesterday's intraday trading was closely watched for signs of greater flexibility in the yuan as the PBOC announced the widely-expected move on Saturday to widen the yuan's trading band against the US dollar to 1 percent from yesterday, up from the previous limit of 0.5 percent, allowing a freer two-way fluctuation.

A trader in Shanghai yesterday said widening the trading band of the yuan is an important move toward internationalizing the currency.

Economists have said the move may signal an end to a straight firming of the yuan against the US dollar, but the yuan may still strengthen 1 or 2 percent this year.




 

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