China's offshore yuan pared some of its sharp gains racked up this week, but is still on course for its biggest weekly rise after Beijing was suspected of pushing up overnight borrowing costs to discourage bearish bets on the currency. Both onshore and offshore yuan have been rallying, driven predominantly by a blow-up in yuan borrowing costs offshore and tighter liquidity.
The spread between the two spot rates widened to its highest since 2010. Chinese authorities are keen to deter speculation in the currency and traders suspect policymakers have sought to prevent it from weakening to the 7-per-dollar level, ahead of US President-elect Donald Trump's inauguration on January 20. Traders said the market had long held a strong "one-way" expectation of depreciation in the yuan and the rally in the currency over the week was the authorities' attempt to alter such views.
The People's Bank of China (PBOC) set the official midpoint for the yuan, which is allowed to move in a tight band around that guidance rate, at 6.8668 per dollar prior to the market opening, 639 pips or 0.9 percent, firmer than the previous fixing. That made it the largest upward move since the yuan was revealed and taken off a fixed dollar peg in July 2005. The spot market opened at 6.8789 per dollar and settled at 6.9230 as of 4:30 pm (0830 GMT), 400 pips weaker than the previous late session close and 0.82 percent softer than the midpoint.
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