The dollar edged lower on Tuesday in choppy trading after the Chinese central bank said it would gradually exit from regular intervention in the foreign exchange market.
But analysts said over the medium term, the dollar is still expected to perform better than the euro and yen as the Federal Reserve prepares to wind down its stimulus, a process that many expect will get under way in March next year.
The market, meanwhile, digested news on Tuesday that didn't include the Fed. Zhou Xiaochuan, head of the People's Bank of China, said in a book on reforms published on Tuesday that China will gradually expand the yuan trading band to help make the currency more flexible and market-driven. This followed reform plans last week to let the market play a ``decisive'' role in the economy.
The PBoC comments spurred some modest dollar selling, as the widening of the Chinese trading band meant the yuan would strengthen against the dollar. But analysts said the remarks don't mean that China will move the trading band overnight. It could happen though over the next five years.
"All announced moves from China over the past eight years toward further flexibility have been followed by a marked reduction in the value of the dollar index," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
He added that a convertible yuan is a condition for the yuan to be included in the International Monetary Fund's special drawing rights basket.
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