China's offshore spot yuan firmed sharply on Thursday in a move that reduced the spread with the onshore rate to the narrowest in two weeks. The jump followed a build-up of bearish positions in the currency following the central bank's cut in interest rates and bank reserves last weekend. The offshore yuan rose to an intraday high of 6.3605 per dollar, strengthening from an intraday low of 6.4004, in what one trader said was suspected intervention by Chinese state banks. The onshore yuan closed at 6.3567 at 0830 GMT.
The sudden rise left the offshore rate, referred to as CNH in market speak, just 38 pips weaker than the onshore rate, or CNY, compared with more than 450 pips on Wednesday. "Market rumour is that the central bank in intervening in the offshore market, trying to narrow the spread between CNH and CNY because it was too wide," said the head of FX trading at an Asia bank in Hong Kong. "We saw Chinese banks buying the yuan heavily, once in late morning and more aggressively in the afternoon," said the trader. China's shock devaluation of the yuan in August sparked market fears the economy was slowing down more than expected. Many of those bets are easier to place in the offshore market.
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