Yuan rises for second day after China tightens monetary policy
PBOC lowers the yuan’s guidance rate to the weakest in two weeks
Onshore yuan strengthened for a second straight session on Monday, after the People’s Bank of China unexpectedly raised interest rates in the money market on Friday, indicating a shift towards further monetary tightening.
The spot yuan firmed to 6.8607 per US dollar in Shanghai on Monday afternoon, a 0.09 per cent rise from late Friday. It has now strengthened 0.3 per cent from 6.884 on January 26. The onshore market was closed from January 27 and February 2 for the Lunar New Year holiday.
The offshore market fluctuated between losses and gains during the day, with the yuan currently down 0.09 per cent to 6.8085 per US dollar. The offshore rate had risen for two sessions in a row before Monday.
Investors seemed to have ignored a weaker fixing by the Chinese central bank earlier on Monday, as the People’s Bank of China reduced the yuan’s mid-point rate to 6.8606 per US dollar, the lowest in more than two weeks. It was down 50 basis points or 0.07 per cent from the previous fixing.
“Traders are focusing on the PBOC’s tightening of monetary policy on Friday, by increasing short-term interest rates on a number of money market functions and raising the cost of borrowing from the central bank,” said Chris Weston, an analyst for IG Group.
