China changes rules on renminbi; US dollar stronger on week

Story link: China changes rules on renminbi; US dollar stronger on week

On Friday, China’s central bank widened to 3 percent the band in which the renminbi may trade against non-dollar currencies, reducing the need for the bank to interfere in the currency markets. The move came on the same day as the G7 nations meet, lessening the chance that they will again urge China to increase the flexibility of its currency.

The previous band of movement by the renminbi per day on non-dollar currencies was 1.8 percent. The range of movement per day by the Chinese currency against the dollar was left at 0.3 percent.

Elsewhere, some analysts said this week that they expect the Bank of England to cut interest rates again from the current 4.5 percent, possibly as soon as November. Meanwhile, in the US this week the Federal Reserve raised interest rates again, to 3.75 percent. Along with the rate hike, the Fed made comments indicating that its periodic increases will continue into the foreseeable future. This raised the possibility that interest rates in the US and the UK could reach the same level as soon as the end of this year.

Another factor affecting the currency trade during the week was the approach of Hurricane Rita toward the Gulf Coast of the US. The downgrade of Rita from Category 5 to Category 4 was considered dollar positive by most analysts, although some reminded that Katrina was rated a Category 4 when it hit New Orleans at the end of August, causing widespread devastation.

The US dollar gained 1.2 percent in relation to the euro this week, to $1.2076, while it was up by 0.8 percent to ¥112.2 versus the yen.

The euro was up 0.25 percent to £0.6786 in relation to sterling.

Sterling, meanwhile, lost 1.4 percent to $1.779 versus the US dollar.