The Chinese yuan moved up to a 10-month high against the dollar on Tuesday following the central bank placing a stronger guidance rate and data revealing an increase in China’s foreign exchange reserves that was more than what was expected.
Spot yuan gained 0.3 percent breaking through the 6.7 level against the dollar for the first time since October 2016, bolstered by corporate dollar sales, according to traders.
This has been the Chinese currency’s largest daily gain since late June.
The People’s Bank of China laid down a midpoint rate at 6.7184 a dollar before the market opened. It was stronger by 0.07 percent or 44 pips than the previous fix of 6.7228.
The yuan opened at 6.7150 a dollar and traded at 6.6990 on the midday.
According to a trader at a bank in Shanghai, the spike in the value of yuan was due to corporate dollar selling. Companies are now expressing worries after the Chinese currency rose, the trader added.
In order to minimize their losses, companies with long positions on the dollar are now cashing in. The rate of how much the dollar traded could be increased if the yuan can be maintained above the 6.7 level.
Forex markets weren’t all too bothered by the underwhelming trade data issued on Tuesday morning.
The exports and imports of China was growing slower than what was anticipated in the month of July, increasing worries over whether global demand is starting to lose steam as key central banks in the west might tone down their stimulus programs.
The dollar index, which measures the greenback against a group of other currencies, was down from 93.432 to 93.306.