China just hammered speculators with a surprise strengthening of the yuan. The yuan made its biggest-ever two-day move. China has been burning through currency reserves in an effort to keep the yuan from depreciating too rapidly. The surprise strengthening is a new tactic likely intended to drive speculators out of the currency and to strengthen China’s hand in currency markets.
The Financial Times has more of the details:
China’s renminbi has made its biggest-ever two-day gain as strong data and shrinking liquidity offshore wrongfooted China bears and helped push the dollar lower around the world.The offshore renminbi rallied as much as 2.6 per cent against the dollar to Rmb6.7853, its strongest level since early November. As recently as Tuesday, the offshore version of China’s currency had been trading at Rmb6.9895, its weakest level since being launched in seven years ago.
The renminbi’s surge weakened the dollar against other global currencies, taking it to a three-week low against the yen at ¥115.6.
Strategists said investors were testing the strength of the market with the unexpected moves, which have taken place in a week where trading is only just getting back up to speed following thin December conditions.
Hans Redeker, strategist at Morgan Stanley, said as well as the renminbi, trading in dollar-yen, one of the most active currency pairs in the world, demonstrated this.
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