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Yuan Bets Shift to How Low From How High as Central Banks Reign

Yuan Bets Shift to How Low From How High as Central Banks Reign

China’s currency has gone from hot to cold in a matter of weeks amid speculation policy makers are taking advantage of a revival in the dollar to ta

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China’s currency has gone from hot to cold in a matter of weeks amid speculation policy makers are taking advantage of a revival in the dollar to take some froth out of this year’s rally.

The yuan was down 0.2 percent to 6.6035 per greenback at 12:51 p.m., taking its decline from a Sept. 8 peak to 2.6 percent. That’s a sharp reversal from earlier this month, when the currency surged 1.5 percent in just six days.

The turning point came when the People’s Bank of China eased a forwards trading rule that made betting against the currency more expensive — a clear signal that the surge had gone far enough. A mild recovery in the greenback thanks to a more hawkish Federal Reserve — the Bloomberg Dollar Spot Index is up 1.1 percent since Sept. 8. — has hastened the yuan’s decline.

“Investors were too optimistic earlier, and they are now pushing the yuan lower because they figured the policy makers believed the currency was too strong,” said Eddie Cheung, a strategist at Standard Chartered Plc in Hong Kong. “There’s still room for the dollar to rise in the short term if the market becomes more confident on U.S. rate hikes. That said, the yuan could weaken further this year, though the PBOC wouldn’t allow any sharp declines.”

With China’s financial markets closing for the whole of next week due to National Day holidays, traders are looking to see whether the PBOC will send any new signals to influence the currency’s direction before the Communist Party Congress that begins Oct. 18.

finance.yahoo.com

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