Dubai-Mubasher: Most emerging markets’ currencies depreciated against the US dollar in the last twelve months, helping improve their competitiveness, according to a weekly analysis issued by Asiya Investments Company.
However, economies with a US dollar peg appreciated against other currencies, the company said, adding that these include the GCC countries, Hong Kong and China which may face additional appreciation pressure after the Federal Reserve raised interest rates.
The People's Bank of China devalued the yuan in August following a change in the way it determines the country’s foreign exchange rate.
Since then, the yuan depreciated around 4% against the US dollar, the largest five-month drop in over twenty years.
China’s central bank unveiled a new currency index: the China foreign exchange trade system (CFETS) RMB index, the company said, adding that the release of the index is a signal to the market that the central bank still considers the yuan as overvalued.
The index was also introduced one week before the Federal Reserve decided to raise interest rates, a move that is expected to appreciate the US dollar.
China’s move can be read as a central bank signal to the market that it plans to devalue its currency further.
In addition, the central bank has been using foreign exchange reserves to buy yuan from banks in order to maintain the soft peg, draining liquidity from the financial system and leading to a 10% decline in foreign reserves compared to 2014.
