China's yuan looks set to post its biggest-ever weekly gain as Beijing moves to head off the risk of capital flight and quash speculation. The sharp correction to the exchange rate comes as state-owned banks are aggressively selling dollars at the behest of the People's Bank of China (PBOC), traders said.
The sudden move has erased all of the yuan's losses this year and squeezed companies that have bet the yuan would fall further as the economy cools.
The yuan has risen sharply against the dollar in the last three days, including a gain of more than 0.5 percent to 6.1961 on Thursday. It looks set to gain a full percentage point for the week, which would be its sharpest rise since its landmark revaluation in 2005, and a Reuters poll on Thursday showed that analysts have backed off from short positions in face of the central bank's supporting firepower.
A firmer yuan may ease concerns that a further slide in the exchange rate could spark destabilising capital outflows, and comes alongside other steps seen as tightening the capital account, including a Thursday announcement increasing restrictions on trading in gold.
The yuan fell 2.4 percent against the dollar in 2014 on the back of a rising dollar and concerns about slowing economic growth, sparking a record $96 billion of capital outflows in 2014.
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