The People's Bank of China set on Wednesday its daily yuan-fixing at the weakest level against the U.S. dollar in more than five years. The so-called yuan fix was set at 6.5693, the weakest level against the greenback since March 2011, and 0.3% weaker than Tuesday's level of 6.5468. The figure serves as a reference point for the onshore yuan, which can trade 2% higher or lower than the PBOC's central reference rate. The onshore yuan weakened 0.2% to 6.5642 afterwards, a three-month low, while its offshore counterpart, which trades around the clock in Hong Kong, was unchanged at 6.5677. Analysts said the move reflected strength in the U.S. dollar overnight, after new-home sales rose at the fastest pace since January 2008. The fixing methodology used by the People's Bank of China to determine the yuan's daily fixing takes into account the moves of related currencies, especially the U.S. dollar. The U.S. dollar index DXY, +0.01% , which tracks the greenback's strength against a basket of six currencies, has gained 0.4% in the past two days to reach a two-month high of 95.607 as expectations build that the Federal Reserve may resume raising interest rates at its June meeting. Today's move in the yuan was largely a reaction to that, said Eddie Cheung, Asia FX strategist at Standard Chartered. "The move we had today was still predictable," he says. "It's still following the rules." Markets have been unnerved by the yuan's moves since a botched shift to a market-determined exchange rate in August last year, which resulted in a devaluation of the currency. The Wall Street Journal reported Tuesday that the People's Bank of China had quietly abandoned the new mechanism, essentially returning to the old way of adjusting the yuan's daily value higher or lower based on whatever suits Beijing best. The U.S. Treasury said Tuesday it is confident that China is gradually shifting the yuan toward a market-based exchange rate." Source: MarketWatch
