Yuan Rises to Three-Week High as Fed Refrains From Rate Signal

  • Dollar index slips for third day, helping strengthen yuan
  • China “clearly wants” currency at 6.7 for now, HF’s Lee says

The yuan rose to a three-week high as the Federal Reserve refrained from signaling an imminent rate hike, adding to optimism the currency will halt declines as Chinese authorities show a preference for stability.

A gauge of the dollar was set for a third day of losses after the Fed stopped short of signaling it could raise rates in September while showing greater optimism over the U.S. economy. The yuan has stabilized this month following its worst quarter on record as China’s economic data improved and policy makers were seen steadying the exchange rate before a Group of 20 summit in September.

“The central authorities may want the yuan to depreciate but not that quickly,” said Stella Lee, head of marketing and sales at HF Financial Group Ltd. in Hong Kong. “They clearly want the yuan stabilized at 6.7 for now. It won’t fall past that in the near term unless the U.S. dollar strengthens or Chinese data deteriorate.”

The yuan rose 0.18 percent to 6.6579 a dollar as of 4:46 p.m. in Shanghai, according to China Foreign Exchange Trade System prices, as the People’s Bank of China strengthened its daily fixing by 0.11 percent.

The exchange rate climbed as high as 6.6558 earlier in the day, with Ken Cheung, a strategist at Mizuho Bank Ltd. in Hong Kong, attributing the move to the euro’s strength against the greenback. The offshore yuan climbed 0.09 percent to 6.6653.

Fed officials said in a statement released on Thursday morning in Asia that near-term risks to the outlook have diminished and that labor utilization has shown “some increase,” though inflation remains too low. While this acknowledges U.S. data is improving, it also leaves the central bank room to postpone a hike should economic risks arise.

A Bloomberg replica of the trade-weighted CFETS RMB Index, which tracks the yuan against 13 currencies, slipped 0.05 percent, taking its drop this year to 5.6 percent.

Analysts predicting a weaker yuan say the PBOC -- emboldened by the calm that has greeted the currency’s declines this year -- will guide it lower to aid growth. Bank of America Corp., which predicts the yuan will end the year at 7, calls betting against the currency its favorite trade.

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