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Sharp depreciation of yuan unlikely

(People's Daily Online)

08:12, August 24, 2012

The yuan's exchange rate against the U.S. dollar has continued to drop lately. The Chinese currency's central parity rate against the U.S. dollar was set at 6.3478 on Aug. 20, down 29 basis points from the previous trading day, according to the China Foreign Exchange Trading System.

A study by Fudan University's Institute for Financial Studies showed that the yuan weakened nearly 1 percent against the U.S. dollar in the second quarter, the biggest quarterly decline since 1994.

Experts noted that the yuan had risen over 30 percent against the U.S. dollar over the past few years. The yuan's exchange rate is now taking a circuitous route featuring more significant two-way fluctuations. As China's foreign trade situation and balance of payments surplus have not undergone fundamental changes, the yuan will appreciate in the medium-to-long term.

Yuan depreciates mainly due to strong dollar

"The main reason is the strong dollar," financial expert Zhao Qingming said in an interview, attributing the yuan's recent deprecation to the rising U.S. dollar.

According to a report released by Guotai Junan Securities, market expectations about the yuan's exchange rate basically follow the trend of the U.S. Dollar Index, as the yuan is pegged to a basket of currencies, and the U.S. dollar has a large weighting in the yuan's exchange rate. The steadily rising U.S. Dollar Index is a major contributing factor to growing expectations of yuan depreciation.

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