China PBOC sets the yuan midpoint to stronger than 7 per dollar
An ICBC bank clerk counts Chinese 100 yuan at the Beijing branch.
Kim Kyung-Hoon | Reuters
After China's currency weakened beyond a closely monitored level on Monday, the country's central bank set the yuan's official reference point to stronger than that on Tuesday.
The important line is at seven yuan per dollar. In Monday's Asian afternoon trading hours, the country's currency traded 7.0304 against the dollar, while the offshore yuan traded at 7.0807 against the greenback.
On Tuesday morning, the People's Bank of China put the yuan fortress at 6.9683. This was stronger than expected 6.9736, according to a Reuters estimate.
Still, it was weaker than the parity level of 6.9225 as of Monday morning ̵[ads1]1; and it's the weakest since May 20, 2008, according to Reuters. [19659002] "Today's fix of USDCNY 6.9683 comes close to the estimates published every day by some of those trying to mirror how PBoC puts its midpoint relative to its trading partners. But it is still a fairly large move and about twice the increase seen yesterday, "said Robert Carnell, chief financial officer for INS Pacific at ING, in a morning note.
Given the 2% allowable trade band for the yuan, this means that the spot exchange rate for the dollar against the dollar may rise to 7.1 according to Carnell.
"But the traits so far do not look like this big, and it seems that some market participants expected the fix today to be even higher, so the actual result is" less supportive "than anyone had imagined," added he to.
Markets around the world are closely following the yuan's position against the US $ 7 level after the US on Monday declared China a currency manipulator.
Monday's sharp weakening in the Chinese currency came after US President Donald Trump unexpectedly announced fresh tariffs on Beijing last week, which is why the yuan move was widely considered a response from the Chinese side.
"I think this is clearly a retaliation that China has recently refrained from doing," Claudio Piron, co-head of Asia exchange rate and currency strategy at Bank of America Merrill Lynch Global Research, told CNBC on Monday.
The next step after issuing the "manipulator" designation is for the United States to take the case for the International Monetary Fund, but it is unlikely to result in formal penalties. The label is mostly symbolic and means more as a small to one of America's largest creditors and as an escalation in the ongoing trade war from Washington and Beijing.
—Reuters and CNBC's Thomas Franck and Eustance Huang contributed to this report.
