China's economic fundamentals will support a stable and strong yuan despite weakening in January, a central bank website said Tuesday.
While fluctuations will continue, the yuan will be basically stable as the economy improves, the financial market opens up more and a current monetary policy remains in place, according to the website of the China Foreign Exchange Trade System (CFETS).
The statement came after China's foreign exchange reserves dropped below 3 trillion U.S. dollars to a six-year low in January, with the central bank selling foreign currencies to support a weakening yuan.
The yuan exchange rate composite index, which measures the yuan's strength relative to a basket of 13 currencies including the U.S. dollar, euro and Japanese yen, fell 0.64 percent in January to 94.22.
During the same period, the index that measures the yuan against the Bank for International Settlements currency basket dropped 0.71 percent to 95.56, while against the Special Drawing Rights basket it weakened 0.16 percent to 95.35.
The CFETS described the declines as mild, noting that the composite index had stayed above the 94 level.
Against the U.S. dollar, the yuan strengthened by 1.14 percent in central parity rate and by 1.04 percent in the market rate in January.
The CFETS attributed the yuan-dollar movement to fewer signals of further interest rate increases in the United States and the fact that U.S. President Donald Trump had suggested he favored a weaker dollar.
The CFETS warned of uncertainty in the economic and diplomatic policies of the new U.S. administration, the pace of U.S. interest rate hikes and the possibility of more unforeseeable events.
