A belief that Chinese authorities would continue to guide the yuan higher has helped push investors into the currency, which has appreciated 3.9 percent so far this year and 7.7 percent since June 2010.
But in recent weeks, the advance has stopped, as investors have fled to the safe haven of the dollar. While the yuan surged Tuesday and Wednesday, many market participants are spooked by the volatility.
"People are backing out of the yuan trade because it's become a riskier bet since the scramble for U.S. dollars intensified in late September," Tim Condon, chief Asia economist for ING, tells The Wall Street Journal.
Worries abound that China doesn’t want its currency to rise much further for fear of crimping its exports.
"Everybody is still digesting the recent sell-off and trying to figure out what's next," Kimman Ngan, head of Hang Seng Bank's renminbi business strategy and planning department, tells The Journal.
Recent comments from Chinese officials indicate the yuan’s ascent could indeed come to a halt. The exchange rate is at a "basically reasonable level," Chinese Commerce Minister Chen Deming said Friday at the G-20 summit.
Still, some experts look for the yuan’s rise to resume. "The government may want to avoid allowing too much yuan appreciation, as that would hurt exports," Citigroup economist Ding Shuang tells Bloomberg.
"But the currency will still rise, as China wants to encourage imports and reduce the accumulation of its foreign-exchange reserves."
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