When the People’s Bank of China triggered the devaluation of the yuan back in August 2015, the one-year US dollar-yuan forward premium jumped as high as 4,000 pips later that year. Over the past 12 months, the yuan has strengthened and taken back nearly all its losses since the devaluation. Concurrently, the one-year forward premium has narrowed to about 1,100 pips last week. But in the past week, it has retraced back to 1,500 pips. According to a report by UOB, while it is premature to say this is the end of this round of yuan strength, it is possible that the dollar-yuan exchange rate may be in the process of establishing a bottom at around the 6.30 level. This level may well be the near-term floor in the pair as the extended Lunar New Year holiday approaches in China, analysts at UOB say.
