China’s yuan shows strengthening against US dollar on Wednesday
Date
12/18/2024 3:38:38 AM
(MENAFN) On Wednesday, the central parity rate of the Chinese currency, the renminbi (yuan), strengthened by 11 pips, reaching 7.1880 against the U.S. dollar, according to the China Foreign Exchange Trade System. This represents a modest appreciation of the yuan, reflecting a shift in its value against the U.S. dollar on that particular day. The central parity rate is an important indicator, as it is closely monitored by traders, investors, and policymakers alike.
In China’s spot foreign exchange market, the yuan is allowed to fluctuate within a 2 percent range above or below the central parity rate each trading day. This trading band allows for some flexibility in the currency’s value while still adhering to the central bank’s broader monetary policy goals. By maintaining this range, China aims to prevent excessive volatility in the yuan’s exchange rate, offering stability in foreign exchange markets.
The central parity rate itself is determined using a weighted average of prices offered by market makers before the opening of the interbank market each business day. Market makers, typically large financial institutions, provide their bid and ask prices for the yuan, and the central bank uses these inputs to set the parity rate. This method ensures that the rate reflects the consensus of market participants at the start of the trading day, which serves as the benchmark for yuan-dollar exchange rates in the spot market.
This process plays a crucial role in China’s management of its currency, which is tightly regulated by the People's Bank of China (PBOC). By setting a daily central parity rate, the PBOC can guide the yuan's value within a controlled environment while still responding to market forces. This strategy is part of China’s broader approach to managing its economy, balancing domestic growth with the international competitiveness of its currency.
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