Yuan Rises Most in Two Months as PBOC Official Pledges Stability

  • China also has ample foreign exchange reserves, Yi Gang says
  • Currency’s advance to be short-lived as dollar will rise: CEB

The yuan advanced by the most in more than two months after an official from China’s central bank said the currency is strong compared with other exchange rates and the nation’s foreign reserves are ample.

The currency rose 0.17 percent, the most since Sept. 7, to 6.9050 per dollar as of 5:28 p.m. in Shanghai. The offshore rate climbed 0.18 percent. A Bloomberg replica of the CFETS RMB Index, which tracks the yuan against 13 exchange rates, is close to its strongest level in three months. The yuan hovered around its weakest level in eight years last week, as the greenback surged amid speculation U.S. President-elect Donald Trump’s reflationary economic policies will trigger faster monetary tightening.

The yuan’s recent depreciation against the dollar has been small compared with most currencies, and it will continue to remain stable in the future, Yi Gang, deputy governor of the People’s Bank of China, said in an interview with the official Xinhua News Agency on Sunday. The central bank posted Yi’s comments on its website.

The nation’s foreign-exchange reserves are "very ample," and capital will flow back to the country as the economy recovers and the business environment improves, Yi said. The stockpile fell to $3.1 trillion in October, the lowest level since 2011.

"The Chinese government may have judged that the recent slump has been too quick and the yuan is close to a fair level for now, so it’s time to make some positive comments to support the currency," said Banny Lam, head of research at CEB International Investment Ltd. in Hong Kong. "The yuan will rebound in the next few days, but the strength will be short-lived as the dollar will continue to advance before the Federal Reserve hikes in December."

The odds of a rate hike by the Fed by the end of the year have risen to 100 percent.

Yi’s comments came after Chinese media last week sought to project an image of controlled descent of the currency. The PBOC-run Financial News argued on Friday that the yuan’s volatility is a "natural reaction" to global foreign-exchange moves and the market is no longer expecting a “bottomless fall.” Xinhua said on Nov. 21 that stability is a priority.

— With assistance by Tian Chen

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