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Chinese yuan strengthens to 27-month high against USD

Chinese yuan strengthens to 27-month high against USD

China’s economy expanded 6.9 percent in the first half, above the target of around 6.5 for the year

The central parity rate of the Chinese currency renminbi (the yuan) advanced for the fifth consecutive trading day to a 27-month high against the U.S. dollar.

According to the China Foreign Exchange Trade System, the rise came after the yuan advanced 93 basis points to reach 6.3916 against the U.S. dollar, when the yuan surged beyond 6.4 against the U.S. dollar for the first time since December 2015.

The tumble was accelerated after U.S. Treasury Secretary Steven Mnuchin made remarks Wednesday that a weaker dollar was welcomed by the country.

In the spot market, the yuan opened at 6.8860 per dollar and suddenly strengthened nearly 200 pips to a high of 6.8690 per dollar, the strongest intraday level since March 27.

Mnuchin said at the World Economic Forum in Davos that the declining dollar was good for U.S. exporters, suggesting he is not worried about the currency’s recent drop.

Pan Gongsheng, the head of the State Administration of Foreign Exchange, said the yuan will maintain its stability in spite of some fluctuations as China’s economy improves.

The currency’s robust performance was the result of a weaker dollar, sound economic fundamentals, improved regulation on capital flows, a relatively tightened monetary environment and increased global use of the currency.

China’s manufacturing activity expanded for the 13th consecutive month in August, providing fresh evidence of a firming Chinese economy.

The Chinese economy expanded 6.8 percent year-on-year in the last quarter of 2017, the same as in the previous three months and beating market expectations of 6.7 percent.

Analysts said this signals that the PBOC does not want to allow too much appreciation of the yuan against the dollar as a stronger renminbi will benefit the banking sector, real estate and airlines, but will adversely affect exporters.

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