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Currencies

Yuan firms after stronger PBOC fix, ignoring hawkish Yellen

‘Janet Yellen’s words were the main catalyst for overnight markets, evidently surprising on the hawkish side,’ said Jingyi Pan, a strategist for IG Group.

PUBLISHED : Wednesday, 15 February, 2017, 12:14pm
UPDATED : Wednesday, 15 February, 2017, 12:14pm

The Chinese yuan strengthened against the US dollar on Wednesday after the People’s Bank of China raised the fixing by the most in three weeks, while the greenback also rose versus other currencies after Federal Reserve’s chairwoman Janet Yellen implied the Fed is likely to raise rates at upcoming meetings.

The spot market traded at 6.8665 per US dollar as of 11.40am, up 0.01 per cent or 10 basis points from late Tuesday.

The offshore yuan also gained 0.08 per cent or 58 basis points to 6.8543 per US dollar.

Earlier in the day, the People’s Bank of China raised the yuan’s mid-point rate by a second straight day to 6.8632 per US dollar, up 174 basis points from the previous fix. It also marked the biggest increase in three weeks.

If inflation keeps pushing higher we may see a far more intense tightening of monetary conditions [by China’s central bank]
Chris Weston, chief market strategist for IG Group

Analysts expect China’s central bank to pursue a tightening policy bias.

“If inflation keeps pushing higher we may see a far more intense tightening of monetary conditions,” said Chris Weston, chief market strategist for IG Group.

In other forex markets, the US dollar gained against the Japanese yen, up 0.05 per cent or 6 basis points to ¥114.32. It rose 0.03 per cent or 4 basis points to 1.2464 per pound, but dropped 0.02 per cent or 2 basis points to 1.058 per euro.

Yellen said on Tuesday night in a congressional testimony that it would be “unwise” to wait too long to tighten rates and implied that the Fed might make moves at “upcoming meetings”.

“Janet Yellen’s words were the main catalyst for overnight markets, evidently surprising on the hawkish side,” said Jingyi Pan , a strategist for IG Group.

“While the market had expected a strong rhetoric on improving economic conditions, the push to hasten the next rate hike had been unexpected,” she added.

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