China has raised the exchange rate for its currency, the yuan by 0.56% against the US dollar, from the previous day.
The central bank – People’s Bank of China (PBOC) – fixed the yuan rate at 6.4589 to the US dollar on Friday.
That is the biggest increase in nearly 11 years.
China only allows the yuan to rise or fall 2% on either side of the PBOC’s daily fix, to avoid volatility and maintain control over the Chinese currency.
Analysts have pointed out the move is not a reflection of future yuan policies.
Some have argued the PBOC’s move is a knee-jerk reaction to US dollar weakness overnight. The US dollar had fallen sharply against the yen after the Bank of Japan surprised markets and decided against any extra monetary easing.
“The expectation for a stronger yuan fix was laid by the gains for the yen after the Bank of Japan announcement,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong.
According to data compiled by financial news network Bloomberg, Friday’s increase is the strongest daily move by the PBOC since July 2005.
China spooked global investors with a surprise devaluation in August last year, when it guided the currency down by nearly 5% in a week.
Asian markets lower
Market reaction to the move, however, has been muted. The Shanghai Composite index closed down 7.26 points at 2,938.32, while in Hong Kong, the Hang Seng index ended the day down 320.98 points at 21,067.05.
South Korea’s Kospi index closed down 0.3% at 1,994.15.
In Australia the benchmark S&P ASX 200 headed higher towards the end of the trading session and closed up 0.5% at 5,252.22.
The region’s biggest market, Japan, was shut on Friday for a national holiday. The benchmark Nikkei 225 index ended the shortened trading week down 5%.
