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Yuan Halts Three-Day Slide as PBOC Reference Rate Strengthens

It finished the week at 6.3918 yuan per dollar, 0.1% stronger than the fixing of 6.3975, according to China Foreign Exchange Trade System prices.

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“We agree with the central bank that the one-off adjustment seems to be nearing completion”, HSBC said.

The market reaction to the figure announced today has been negligible – it appears markets are becoming far more comfortable with the PBOC’s new currency regime.

Meanwhile, central bank adviser Huang Yiping told Bloomberg that China is unlikely to permit a sharp yuan depreciation and retains the ability to support the currency.

Currencies like the Malaysian ringgit and the Indonesian rupiah rebounded from their lowest levels against the U.S. dollar since the Asian financial crisis in the late 1990s, while stocks from Hong Kong to Australia also bounced.

Economists had feared that the central bank was resorting to devaluing its currency in an attempt to shore up growth, as official GDP figures are widely believed to have been manipulated in an attempt to present a brighter picture of the Chinese economy.

On a trade-weighted basis, China’s yuan has been rising in recent years in part because of its peg to the US dollar.

Tan said that China’s gross domestic product (GDP) accounted for 43 percent of the total created by the economies in the Asian Pacific region, so there is no doubt that other regional currencies will follow the yuan to move lower, while the magnitude of the falls in different currencies will vary.

“I don’t see the necessity for another easing step right now, in particular after the central bank has reassured the market that this round of yuan depreciation is largely over”, said a trader at a Chinese commercial bank in Beijing.

But faced with a run of weak economic data, China pushed down the value of the yuan this week, drawing accusations that it was unfairly supporting its exporters.

“Greater exchange rate flexibility is important for China as it strives to give market forces a decisive role in the economy and is rapidly integrating into global financial markets”, an International Monetary Fund spokesperson said in an emailed statement.

China devalues the yuan for the third straight day, raising new fears that the measure could bring a fresh wave of price weakness to the West and trigger a currency war.

Yi added the value of Yuan is determined by the market.

“China will continue to calm down”, said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. Zhang cited this as a decisive factor in the market and a fundamental prop for the currency.

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Analysts have viewed the action as a way for China to both boost exports by making its goods cheaper overseas and push economic reforms.

Q&A What's behind the China's yuan devaluation