(Bloomberg) -- Recent strength in the yuan against a basket of trading partners' currencies suggests the government is no longer seeking depreciation -- a significant shift to an approach that began two years ago with a surprise devaluation.
While the yuan has been rallying against the dollar for much of the year, the currency continued to weaken on a trade-weighted basis as policy makers limited gains versus peers to give its exporters a competitive edge. That strategy appeared to end in recent weeks, with a Bloomberg replica of the CFETS RMB Index climbing as the U.S. currency fell. Previously, the two had moved roughly in sync.
The unshackling of the trade-weighted index from the dollar may be a sign China has reached its goal in weakening the currency amid a recovery in exports. A Bank of International Settlements index of China's real effective exchange rate fell to the lowest since August 2014 in May.
The basket was created in late 2015, just months after the yuan's one-off devaluation roiled global markets. It traded near the highest since March on Wednesday, as the yuan rallied to its strongest level in more than a year versus the greenback.
To contact the reporter on this story: Justina Lee in Hong Kong at jlee1489@bloomberg.net.
To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Will Davies
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