China Weakens Yuan Rate as Dollar Surges

yuanAn employee places Chinese one-hundred yuan banknotes into a money counting machine in an arranged photograph at the Bank of China Hong Kong Ltd. headquarters in Hong Kong, China, on Thursday, Nov. 12, 2015. Photographer: Xaume Olleros

China weakened the yuan reference rate by the most since August devaluation, citing the dollar gains post-brexit.

The People’s Bank of China on Monday lower the yuan reference rate by 0.9 percent to 6.6375 a dollar after the dollar gauge climbed 1.8 percent on Friday, following the U.K.’s vote to leave the European Union. The offshore yuan fell 0.3 percent as of 9:21 a.m. in Hong Kong on Monday.

“The market will experience further volatility,” Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore, said before the reference rate was adjusted. “Today’s reference rate will be weak, the question is how weak.”

The fixing of the reference rate had become more predictable since PBOC pledged to be more transparent in early February. The fixing which is set by using previous day’s onshore close, overnight rate of major currencies and as well as taken into consideration market demand and supply for the currency — can’t diverge more than 2 percent, according to the PBOC.

The apex bank was forced to adopt a market based system when traders worldwide became obsessed with the fixing in January and fears further devaluation would trigger global market turmoil and capital flight from the world’s second biggest market.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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