Offshore rates for China's yuan fell on Tuesday to their weakest since a hefty two-day devaluation in August, mirroring a fall in onshore rates, with traders citing strong year-end dollar demand. Sweden's crown meanwhile hit a nine-month high against the euro as investors bet that the country's economy would continue to improve and that its central bank would hold off from cutting interest rates further for the time being.
Trading was thin, however, with many traders away for the Christmas holiday season. The dollar was 0.1 percent higher against a basket of major currencies ahead of US house price and consumer confidence data, which is expected to show an increase.
"In a low liquidity environment, a potential improvement in a measure that foreshadows US consumption could boost the dollar at least temporarily," wrote analysts from broker IronFX. The greenback strengthened around 0.2 percent against the yuan in offshore trading, to 6.5800 yuan. That was its strongest against the Chinese currency since August 12.
Commerzbank currency strategist Thulan Nguyen, in Frankfurt, said this was a continuation of depreciation trend in the yuan since it was included in the International Monetary Fund's benchmark SDR reserves basket. "The PBOC (People's Bank of China) is just letting it ease gradually," said Nguyen. "I think they realise now that the best long-term strategy is to let it depreciate, because that will support the economy."
Earlier, the yuan briefly touched a 4-1/2-year low in onshore trade. Traders said it had been dragged down by strong dollar demand, as corporates typically need extra dollars to settle business at the year-end. The Swedish crown rose 0.3 percent against the euro to trade at 9.1500 crowns, its strongest since mid-March. "Before the last ECB meeting there was quite a lot of speculation that the Riksbank would have to act as well because the ECB would become more expansionary," Commerzbank's Nguyen said. "But they didn't do anything (and) that was taken as an invite by some speculators to drive down euro/stokkie (crown)."
"The other thing is economically, things are picking up in Sweden ... Several banks and statistics institutes are revising their growth forecasts upwards." Sterling fell 0.4 percent to $1.4827, taking it close to a 8-1/2-month low of $1.4806 hit earlier in the month.
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