Chinese Yuan's Drop Is Largest Since Its 2005 Currency Revaluation

The Chinese yuan fell 0.9% to a 10-month low of 6.1808 per dollar in Shanghai, the most on record going back to 2007, report Fion Li and Kyoungwha Kim at Bloomberg News.

This is the largest drop since the revaluation in 2005, reports Fiona Law at The Wall Street Journal.

The People’s Bank of China (PBoC) fixed the yuan at 6.1214 per dollar, according to the China Foreign Exchange Trading System.

This reference rate was stronger than the fix on Thursday. But the yuan continued to weaken.

After rising 3% against the U.S. dollar in 2013, the onshore yuan (CNY) weakened against the greenback last week. The offshore yuan (CNH) has also weakened.

This comes on the back of efforts by China’s central bank, the People’s Bank of China (PBoC), to curb yuan appreciation, forcing many investors out of bets that the currency will continue to rise.

“FX sales data released this week point to continued strong capital inflows in January, and there are no signs of large capital outflows or sharp deterioration in fundamentals in recent weeks,” Jian Chang at Barclays wrote in a note to clients on Friday.

“This supports the view that the recent CNY devaluation was mostly guided by the PBoC to deter speculative capital inflows, rather than due to capital outflows on concerns of China risks”

China’s State Administration of Foreign Exchange (SAFE), which is responsible for governing the foreign exchange market and managing Forex reserves, said that two-way movements would become the norm as the CNY approached equilibrium. It also thinks the volatility we’ve seen so far is in the normal range compared to currency swings in other markets.

For now the yuan can trade in a 1% band, but some expect that to be widened to 2% as Beijing moves to internationalize the renminbi.

This five-day chart shows the stunning rise of the dollar against the yuan:

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