Analysts at BBH suggest that while media trumpets that the Chinese yuan had its biggest weekly fall of the year, it needs to be put in context.
“The yuan's decline was about 0.7%. Recall that under the old Bretton Woods system, one percent movement was consistent with a pegged regime. Moreover, the yuan had risen about 2.6% in the previous three weeks. It was not simply a case of a soft yuan, though the PBOC consistently set the fixing rate lower and removed some disincentives to short the yuan, but the dollar was also generally well bid. The Dollar Index, for example, rose as much as the yuan fell. Chinese data disappointed and the Chinese shares traded heavily after the data, giving back the gains scored earlier in the week.”
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