Traders pushed the yuan’s onshore exchange rate to a five-month low yesterday even as the People’s Bank of China raised the official rate to the highest since March. The 1.2 percent discount between the market and central bank rates is the widest since June. That’s a turnaround from the first four months of the year, when weaker PBOC fixings prompted speculators to reverse bets on yuan appreciation and sent the spot rate lower.
The yuan, known officially as the renminbi, will probably weaken a further 0.7 percent by the end of 2015 as the monetary authority cuts its reference rate as part of efforts to boost growth in the world’s second-largest economy, according to Societe Generale SA. Traders have gained more leeway to influence the exchange rate since March, when the PBOC doubled the currency’s trading band to 2 percent on either side of the fixing.
“The last time the renminbi faced significant weakening pressure, there was a clear policy preference for higher volatility in the currency market,” said Paul Mackel, head of Asia currency research at HSBC Holdings Plc. “This time, however, the move is much more market driven.”
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