PBOC Sets Yuan Price to Four Year Low

The People’s Bank of China Wednesday set the mid-point rate for the yuan at the lowest level in more than four years, as heavy capital outflows and a slowdown in the world’s second-largest economy weigh on the currency.

The yuan’s mid-point was set at 6.414 per dollar Wednesday, its lowest since August 2011, compared with 6.4078 on Tuesday. China’s central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar relative to the official fixing rate.

But it’s not entirely clear that the fresh four-year low represents a huge step. Yuan in the spot market fell to 6.4244 against the dollar following the fix, but the move was a modest 0.1 percent.

“Unless there’s a significant difference between the fixing rate and yesterday’s close, I don’t think you should read too much into the figure,” said Julian Evans-Pritchard, China economist for Capital Economics.

Wednesday’s decline in the fixing was just 0.1 percent, slightly less than Tuesday’s 0.15 percent change and Monday’s 0.2 percent. That pales with the 1.86 percent downshift on August 11, when the PBOC announced its shift to a market-based fixing mechanism.

Evans-Pritchard noted in a phone interview that since the August reform, the fixing is supposed to be based on quotes from market makers and it’s no longer directly controlled by the PBOC.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza