Euro Trims Earlier Gains as Yuan Weakens

By: Barbara Zigah

The common currency Euro rose briefly versus the U.S. Dollar following the Chinese central bank’s signal that it would tolerate the Yuan’s appreciation. Hedge fund operators in China reacted quickly to the announcement and promptly bought the Euro, causing an immediate spike from $1.2316 to $1.2355 in intraday trading. Later, as the Yuan began to weaken, the Euro gave back some of its earlier gains, falling then to a low of $1.2284. Earlier today, the People’s Bank of China established the central parity of the U.S. Dollar/Chinese Yuan at 6.7980, down from yesterday’s 6.8275 which marked the biggest 1-day change in recent trading history, though most market players don’t believe it will occur again. Investors further suggest that the Yuan weakened on speculation that the central bank was actually been intervening to prevent a sharp rise.

The Euro may continue to slide if it cannot hold onto the boost generated by the Chinese central bank’s movements. Likewise, investors continue to worry about the Euro-zone fiscal problems. One forecaster predicts that over the next quarter the Euro may slip to $1.15. Against the Swiss Franc, the Euro fell to an all-time trough, trading at 1.3650 CHF.