Offshore Yuan Soars on Liquidity Squeeze

China’s yuan soared against the U.S. dollar on Thursday following a sharp rise in the offshore spot rate as China worked to stem capital flows and stabilize the currency ahead of Donald Trump’s inauguration as U.S. president and the Lunar New Year.

The offshore yuan gained 0.8 percent against the dollar and traded at 6.8151 as of 0830 GMT (3.30 a.m. ET), driven up by a rising cost of funds in Hong Kong and trading firmer than the onshore spot rate for a second straight day.

It was not clear if Chinese authorities had engineered the spike in yuan borrowing rates in Hong Kong. But they had used such a tactic several times last year to support offshore yuan exchange levels and by extension relieving some of the pressure on the yuan onshore, which is at more than eight-year lows.

Reuters

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.