SHANGHAI: The Chinese yuan ended higher a gainst the dollar on Wednesday after hitting its highest intraday level since late May, as the greenback weakened overnight to its lowest value in four months in global markets.
The yuan has now appreciated 1.1 percent from its lowest level this year, touched on July 25, but the rise has still lagged behind a 5-plus percent dive in the US dollar index during the same period.
Spot yuan closed at 6.326 4 versus the dollar, up from Tuesday's close of 6.3351, after hitting an intraday high of 6. 3225 , it s strongest level since May 22.
It stayed above the official midpoint all Wednesday in a sign that sentiment towards the currency had recovered to some extent due to the global dollar weakness, a trader said.
The central bank set the yuan's midpoint at 6.3355, slightly stronger than Tuesday's 6.3391 and only 4 pips away from the closing spot price the previous day.
The People's Bank of China has also recently fixed its midpoint closer to the yuan's trading levels.
A strengthening dollar trend that lasted for three months from late April is one of the main factors that caused the yuan to fall this year. The currency was down 1.6 percent against the dollar for the year in late July when the dollar index hit a two-year high.
While the yuan has regained much of its lost ground since then, it has still depreciated 0 .5 percent s o far this year as a sharp slowdown in the world's second-largest economy has dampened speculative interest in the Chinese currency.
"The point is that investors should not dismiss out of hand China's ability to exercise nominal exchange rate flexibility to lessen the burden on the real economy due to a slowing global economic environment," Claudio Piron, emerging Asia rates strategist with Bank of America-Merrill Lynch, said.
"We are of the view that while CNY appreciation has still further to run over the longer run (1-year horizon and beyond). However, we believe the shorter-term, 3-to-6-month horizon will see increasing CNY flexibility, depreciation risks and volatility by extension," Piron wrote in a note to clients.
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