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Chinese yuan drops after shift by central bank

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China's move to sharply raise its daily yuan reference rate Monday resulted conversely in a fall in the currency, but its overall upward track appeared to remain in place.

[NEW YORK] China's move to sharply raise its daily yuan reference rate Monday resulted conversely in a fall in the currency, but its overall upward track appeared to remain in place.

Other major currencies were uniformly flat as the week opened - the dollar trading at US$1.1014 per euro and 120.77 yen - leaving the policy move by the People's Bank of China's to hold the forex headlines.

Following last Friday's spike to the highest level since the August devaluation, the yuan slipped back when the PBoC adjusted the central rate of the yuan - also known as the renminbi (RMB) - upwards by 0.54 per cent against the US dollar.

The currency slid to 6.3374 yuan per dollar, against 6.3174 yuan in late trade Friday.

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But at that level it was still significantly stronger than the 6.35-6.39 yuan range held since the August 11 devaluation.

The increase in the central rate was the largest since 2005 when Beijing unpegged the yuan from the greenback, and signalled, most analysts said, that Beijing was committed to reforms that will free up RMB trade.

Some analysts said Friday's unexplained surge was a market response to rising expectations that the International Monetary Fund will decide this month to include the yuan in its basket of elite currencies, known as Special Drawing Rights.

Liu Jian, an analyst from the Bank of Communications, said the government's policy goal "is very obvious." "It is trying to maintain a stable foreign exchange market and guide the market as stability is important for the yuan to be admitted to the SDR at the coming IMF meeting."

AFP

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