SHANGHAI: China's yuan jumped to its strongest against the US dollar in more than two weeks on Thursday morning, breaching a key threshold on the back of heavy dollar selling after the central bank lifted its official fixing by the most in over three weeks.
The yuan also gained momentum as the dollar slipped in global markets ahead of a US tax bill that will be unveiled after a one-day delay.
Prior to market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 6.6196 per dollar, 104 pips or 0.16 percent firmer than the previous fix of 6.63 on Wednesday.
The move in Thursday's official guidance rate was the biggest one-day strengthening in percentage terms since Oct. 11.
The spot market opened at 6.5940 per dollar and rose to a high of 6.5827 at one point in early trade, its best level in more than two weeks.
Spot yuan breached the psychologically-important 6.6 per dollar for the first time since Oct. 17.
By midday, the onshore yuan gave back some gains and changed hands at 6.5998 per dollar, 22 pips firmer than the previous late session close and 0.30 percent stronger than the midpoint.
Traders said gains in the Chinese currency were driven by corporate dollar selling, which forced some market participants to follow and sell their dollar positions to reduce losses.
"The trigger was the corporate flow," said a Shanghai-based trader at a foreign bank in Shanghai, adding the market had not expected such strong corporate dollar sales.
Market participants said the outcome of the US Federal Reserve policy meeting was in line with expectations, and attention was now on who would be the next Fed chief.
US President Donald Trump plans to nominate current Fed Governor Jerome Powell, seen as less hawkish compared to other candidates, as the next chair of the Federal Reserve, a source familiar with the matter said on Wednesday. The announcement is expected later on Thursday.
The Fed kept interest rates unchanged and highlighted "solid" economic growth at the conclusion of its two-day policy meeting. Analysts said the Fed's statement indicated that a rate hike next month is overwhelmingly likely.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 96.25, firmer than the previous day's 96.1.
The global dollar index fell to 94.547 from the previous close of 94.815.
The offshore yuan was trading 0.01 percent weaker than the onshore spot at 6.6004 per dollar.
Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.754, 1.99 percent weaker than the midpoint.
One-year NDFs are settled against the midpoint, not the spot rate.