China let its currency fall sharply again Friday, sending another clear message to speculators that the yuan is not a one-way bet.
It was the ninth consecutive decline for a currency that is tightly controlled by the central bank and has rarely deviated from a steady appreciation.
For years, investors have viewed the continued strengthening of the Chinese currency as a very safe bet. Indeed, it's gained about 10% since the middle of 2010.
But markets have been shocked this week by the sudden change in direction -- the yuan has fallen 1.6% against the dollar over the past nine days. The 0.4% drop on Friday was particular steep. One dollar now buys 6.15 yuan, up from a low of 6.04 in late January.
That may seem like a small move, but it's significant for a currency that is only allowed to trade within a narrow range. Analysts say the People's Bank of China is behind the the reversal.
The central bank's strategy is likely designed to put the squeeze on "hot money" -- a term used to describe cash drawn in from foreign markets where interest rates are low, and invested in Chinese assets in the hope of much higher returns.
The State Administration of Foreign Exchange said this week that recent volatility was "normal", and the result of market participants adjusting their strategies.
It also said that two-way movements in the yuan would become the norm, in part due to an enhanced role for the market.
cnn.com
It was the ninth consecutive decline for a currency that is tightly controlled by the central bank and has rarely deviated from a steady appreciation.
For years, investors have viewed the continued strengthening of the Chinese currency as a very safe bet. Indeed, it's gained about 10% since the middle of 2010.
But markets have been shocked this week by the sudden change in direction -- the yuan has fallen 1.6% against the dollar over the past nine days. The 0.4% drop on Friday was particular steep. One dollar now buys 6.15 yuan, up from a low of 6.04 in late January.
That may seem like a small move, but it's significant for a currency that is only allowed to trade within a narrow range. Analysts say the People's Bank of China is behind the the reversal.
The central bank's strategy is likely designed to put the squeeze on "hot money" -- a term used to describe cash drawn in from foreign markets where interest rates are low, and invested in Chinese assets in the hope of much higher returns.
The State Administration of Foreign Exchange said this week that recent volatility was "normal", and the result of market participants adjusting their strategies.
It also said that two-way movements in the yuan would become the norm, in part due to an enhanced role for the market.
cnn.com
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