Chart of the day: What drives yuan rally?
Over the past few months, as the onshore yuan strengthened against the US dollar, the China Foreign Exchange Trade System’s yuan index, which measures the yuan’s movement against a basket of 24 currencies, has held relatively firm within a tight range of 92 to 93. This confirmed that the yuan strength was unilaterally due to dollar weakness, according to a report by UOB. However, in the latest weekly reading, the index jumped from 92.86 to 94.03. This implies that the yuan has over the past week also started to strengthen against the currencies of China’s leading trade partners, raising concerns over whether there has been a change in the People’s Bank of China’s guidance for the yuan. But UOB also points out that the escalating geopolitical risks over North Korea may have a role to play in the yuan’s gains as well.