China's central bank Friday guided the yuan stronger at the fastest pace in a decade against the dollar, stepping up efforts to support the currency amid concerns over capital outflows from the world's second-largest economy.
The People's Bank of China (PBOC) set the yuan reference rate at 6.8668 against the dollar, compared with 6.9307 on Thursday. The 0.9 percent change over the previous day's fixing was the greatest since 2005, according to Reuters data.
Friday's level marked the highest fixing for the yuan against the greenback since Dec. 6.
China's central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.
Authorities have been taking steps in recent days to support the yuan, in the onshore and offshore markets, as gyrations last year unnerved global financial markets and revived concerns over the health of China's economy.
China regulators introduced new rules this year, which will take effect in July, requiring financial institutions on the mainland to report domestic and overseas cash transactions of more than 50,000 yuan (around $7,217), down from 200,000 yuan previously, Reuters reported.
Starting from Jan. 1, the country's foreign-exchange regulator also planned to step up scrutiny on foreign-currency purchases, Reuters reported. In addition, the supply of yuan in Hong Kong, where the currency trades a bit more freely, has also been curtailed in a move analysts said was aimed at deterring punters from betting on further declines.
"The sharp retracement seen in dollar/offshore yuan is ostensibly a panicked cascade of stop-losses amidst sky high offshore yuan funding costs, but the move also hint at increased investor concern over prospects of even tighter controls on Chinese capital outflows," analysts at Mizuho said in a note.
"While the economic case for steady yuan weakness remains in place, capital outflows on such expectations remain a key bugbear for Chinese policymakers, given its potential of tightening liquidity in the onshore market," they said.
The rebound in the yuan also reflected weakness in the dollar, which has retreated as traders pared long positions. The dollar retreated to the 101 handle against a basket of currencies, trading at 101.64, down from levels above 103.60 reached earlier in the week.