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November 26, 2016

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Yuan drops to new 8-year low versus US dollar

THE yuan continued to depreciate yesterday against the US dollar to hit its weakest point since June 2008.

The central parity rate of the yuan weakened for the third straight trading day by falling 83 basis points to 6.9168 against the US dollar yesterday, according to the China Foreign Exchange Trading System.

In the past 15 trading days, the yuan ended down 14 days and rose only once against the greenback. On Thursday, the yuan dropped below 6.9 against the greenback.

In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.

Analysts said the particularly strong US dollar is the major reason behind the yuan’s continued depreciation this month, and it will continue to influence the yuan’s fluctuation as the dollar is expected to keep strengthening amid rising hopes over a US interest rate hike in December and upbeat economic data in the country.

A number of Federal Reserve policy-makers said a rate hike could be appropriate “relatively soon” if the economic data permit, according to minutes from the Federal Reserve’s November meeting released on Wednesday.

Rising domestic demand has also added pressure on the yuan’s depreciation.

A China Merchants Securities report said the yuan will continue to face depreciation pressure next quarter as Chinese citizens tend to increase purchases of foreign currencies, especially the US dollar, as they plan for overseas travel during the upcoming Spring Festival.

However, experts noted that compared with the firming US dollar, the yuan was relatively stable, and even stronger against other currencies.

The dollar index has surged around 5 percent since it started its appreciation trend on November 7. Meanwhile, the yuan fell less than 2.5 percent against the dollar.

In the same period, the eurozone and Japan saw their currencies weaken by more than 5 percent and nearly 10 percent, respectively, against the dollar, according to Wind Data.

Experts said that with China’s abundant foreign exchange reserves and policy tools, the yuan is not likely to depreciate in a disorderly way.


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