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China's yuan posted its biggest single-day loss since December 8 on Friday after the central bank set a weaker midpoint in response to the fresh round of quantitative easing (QE) announced by the European Central Bank announced a day earlier. The Chinese currency opened at 6.2180 per dollar and ended at 6.2288, its lower close in nearly seven month.
The People's Bank of China set the midpoint rate at 6.1342 per dollar prior to market open, weaker than the previous fix of 6.1247. It was the official rate's biggest single-day weakening in 10 months. The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day. The ECB's QE programme - printing money to buy euro zone government bonds - along with its existing schemes will pump 60 billion euros a month into the euro zone economy. It is set to run from March until September next year.
The yuan has already been on a slight but steady downward trend since December, pressured by the dollar's strength in global markets and broad weakening of currencies in emerging markets. "While the PBOC had been tolerating the yuan's weakening for the past couple of months, strong QE steps recently taken by other global central banks may push it to proactively guide the currency weaker," said a senior trader at a Chinese commercial bank in Shanghai. On Friday, the offshore yuan was trading 0.14 percent weaker away from the onshore spot at 6.2375 per dollar.

Copyright Reuters, 2015

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