The central parity rate of the Chinese currency renminbi, or the yuan, strengthened 202 basis points to 6.8508 against the U.S. dollar Monday, according to the China Foreign Exchange Trade System (CFETS).
The rise came after an announcement by CFETS on Friday that Chinese banks have restarted “counter-cyclical” adjustment as part of the pricing mechanism of the yuan's central parity rate against the greenback.
It said that most of the foreign exchange (forex) market-making banks have made the adjustment on their own initiative since the beginning of August to offset procyclical sentiment amid a weakening yuan in the forex market.
The currency saw a softening trend during the past months in part due to a stronger dollar and a volatile global trade climate, and there have been lingering market expectations of continued slips.
To curb forex market fluctuations driven by irrational sentiment, China's forex regulator introduced the counter-cyclical adjustment factor to the existing pricing model of the yuan's central parity rate against the dollar in May 2017.
After the market returned to normal with balanced capital flows, banks in January rolled back the adjustment and shifted the counter-cyclical factor to neutral.
In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.
The central parity rate of the yuan against the dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
