Japan Inspires China to Boost Yuan
Maria Crisanta Echeverria | | May 01, 2016 07:22 PM EDT |
(Photo : Getty Images/ China Photos) The People's Bank of China (PBoC) is following the US' lead by raising the exchange rate of the Yuan currency against the U.S. dollar.
The People's Bank of China (PBoC) raised the exchange rate of the Yuan currency on Friday against the U.S. dollar by 0.56 percent, the biggest increase since July 2005.
According to China's Foreign Exchange Trade System, the Yuan was fixed at 6.4589 to the dollar. The rise in the Yuan was driven by the Japanese Yen's win over the dollar as it gained 3 percent on Thursday when the Bank of Japan (BOJ) decided to keep its monetary policy steady despite facing soft global demand. The dollar declined by 1.57 percent against the Yen after its 106.38 hit an 18-month low of 106.29
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"The offshore of Yuan's reaction is muted, so it seems the market was already expecting a much stronger fixing," Ken Cheung, a currency strategist at Mizuho Bank said. "This is a reaction to the dollar weakness overnight, and there's not much in the way of policy intention to read into."
Iris Pang, a senior economist at French lender Natixis, explained that "The central bank is trying to fix the (dollar-yuan benchmark) by following the moves of major currencies against the dollar."
Patrick Bennett, a foreign-exchange strategist at Canadian Imperial Bank of Commerce (CIBC) said "Blame the Bank of Japan (BOJ)," as he noted how China now directs the renminbi against a number of other competitive currencies.
The Euro also climbed the ranks this week, taking on as much as 1.56 percent against the dollar.
"Today's strong fixing is triggered by the less upbeat U.S. GDP data after the Fed did not signal a rate hike in June," Pang said. "We believe that the central bank is doing this intentionally as if the yuan is just one of the major currencies in the world, its move should align with those currencies."
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