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Chinese yuan strengthens after Fed rate hike decision

Date:2016-10-12

The central parity rate of the Chinese currency, the renminbi or the yuan, strengthened 253 basis points to 6.8862 against the U.S. dollar Thursday, according to the China Foreign Exchange Trade System.

The U.S. Federal Reserve ended its two-day policy meeting on Wednesday by increasing interest rates, but stuck to its projection of three total rate hikes in 2017, instead of the four some had come to expect.

The Fed’s key short-term rate is rising by a quarter-point to a still-low range of 0.75 percent to 1 percent. It said in a statement that a strengthening job market and rising prices had moved it closer to its targets for employment and inflation.

Analysts said that since the rate hike was widely expected by the market, investors remained cautious about future rate hikes this year, given the uncertainty over the Trump administration’s fiscal policy.

The dollar index, which measures the greenback against six major currencies, was down 0.65 percent to 101.040 in late trading on Wednesday.

The U.S. Federal Reserve sounded less hawkish than anticipated following its latest policy decision, said Jiang Chao at Haitong Securities, noting that the move will ease the depreciation pressure of the renminbi in the short term, and the renminbi is expected to hold steady against the U.S. dollar.

In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.

The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.

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