Businesses should get ready for more volatility in the Chinese yuan, regulator says
China’s foreign exchange regulator told businesses Friday to prepare for more volatility in the yuan.
The Chinese currency, also known as the renminbi, strengthened roughly 1% this week against the U.S. dollar to levels not seen since July 2018. Less than five months ago, the yuan was at its weakest against the greenback since early 2008. Although that is based on a midpoint set by the central bank, the People’s Bank of China, Beijing has been allowing markets to play a greater role in the exchange rate.
One-year implied volatility of the yuan has climbed to 5%, versus less than 2% for previous years, indicating a basis of “increased flexibility” in the exchange rate, State Administration of Foreign Exchange spokeswoman Wang Chunying told reporters on Friday.
On Friday, the official daily midpoint set by the central bank was 6.6703 yuan versus the U.S. dollar, for a gain of more than 4% versus the greenback for the year so far.
The recent strength in the yuan comes as the U.S. dollar index has fallen to its lowest since early September.
Analysts expect China’s relatively robust economic growth and market size will attract more foreign capital in coming years.
The International Monetary Fund forecast last week that China’s GDP will grow 1.9% this year as the only major economy to expand in the wake of the coronavirus pandemic. Covid-19 first emerged in the Chinese city of Wuhan late last year, before accelerating its spread in the country, and subsequently overseas.
The IMF predicts the U.S. economy will contract 4.3% this year, with global growth falling by 4.4%.
Reference: CNBC
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