Yuan Goes Bid In Topsy-Turvy Reaction To PBOC Attempts At Curbing Its Strength

The yuan seesawed as the PBOC ramped up their efforts to curb its strength. China's central bank set their central USD/CNY mid-point way higher than expected, which resulted in the largest divergence between the actual daily fixing and the average estimate in a Bloomberg survey of analysts & traders on record. The move came after the PBOC effectively ordered banks to hoard more FX reserves on Thursday, inspiring broad-based redback sales. Several sell-side desks speculated that the People's Bank may have informally reintroduced the "counter-cyclical" factor in calculating the yuan reference rate, with some seeing the impact of latest measures to reign in yuan strength as temporary.

• USD/CNH shot higher as the PBOC announced their yuan fixing, but the rally quickly lost steam and the pair pulled back into negative territory. Offshore yuan is the best performer in Asia as we type, perhaps fuelled by the perception that the PBOC have only intended to slow rather than prevent further redback appreciation.
• Price action across the G10 FX space was very subdued. The yen fell from the top to the bottom of the pile, as major U.S. e-mini futures recouped earlier losses. Overnight headline flow provided little in the way of notable catalysts for G10 FX crosses.
• November CPI out of the U.S. headlines the global data docket today, albeit anything other than a very sizeable miss is unlikely to alter expectations for the FOMC to accelerate tapering asset purchases next week.
• European data highlights include UK trade balance as well as German & Norwegian inflation data. Comments are due from ECB's Lagarde, Weidmann, Villeroy, Panetta & Elderson.