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China props up yuan to fight depreciation

China's central bank has shored up the sagging national currency by setting the largest one-day yuan increase in over a decade. Analysts said the move may be a short-time remedy, with further depreciation not ruled out.

The People's Bank of China on Friday fixed the yuan at 6.8668 to the greenback in yet another move to support the falling national currency.
The 0.92-percent hike marked the strongest daily increase since July 2005, and with it the biggest one-day upward move since the yuan was revalued and taken off a fixed dollar peg in the same year.
Beijing now only allows the tightly controlled yuan to rise or fall 2 percent on either side of the daily fix by the central bank to prevent excessive volatility.

Imponderables galore

China's currency has log been under pressure over uncertainty over the health of the world's second-largest economy as it shifts from a policy of ultra-expensive investments to an economy relying a lot more on strong domestic consumption.

There have also been a lot of worries over increased capital outflows and the sharp rise of the dollar following Donald Trump's election victory and anticipation of additional US interest rate hikes in the months ahead.

In another, but closely related move to stabilize the national currency, China announced last week it would almost double the number of foreign currencies it used to determine the official value of the yuan. Such a measure will automatically diminish the role of the greenback.

Chinesische Zentralbank Hauptsitz Peking 2014 (Reuters/Jason Lee)

The People's Bank of China (PBOC) has made a lot of attempts in the past few years to retain control over the yuan's moves

Lunar New Year in approaching

Authorities in Beijing have been bending over backwards to deter increased speculation in the yuan and prevent it from weakening to the psychologically important 7-per-dollar level ahead of Donald Trump's inauguration on January 20.

Analysts are not at all convinced that Friday's action by the central bank and government measures taken earlier would have success in the long run in arresting the yuan's descent.

Shanghai-based traders indicated they didn't believe the most recent volatility in the yuan would reverse the longer-term trend of depreciation.

 But they agreed the yuan was unlikely to take another deep dive ahead of the Lunar New Year, the week-long holiday starting at the end of this month.

hg,blc/jd (Reuters, AFP, dpa)

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