(Updates prices, adds more comment)
* Record two-day move in yuan drags dollar broadly lower
* Questions growing over certainty of "Trump rally"
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Jan 5 Some of the biggest gains on
record for China's yuan sent currency markets spinning on
Thursday, driving the dollar broadly lower and threatening to
quash one of the central bets of global investors for 2017.
A rise in overnight borrowing costs in Hong Kong to 96
percent helped the yuan rack up the biggest two-day rise for the
offshore version of its currency since its launch in 2010.
That in turn triggered a broader round of profit-taking on
the dollar, sending it more than 1 percent lower against the yen
and as low as $1.0575 per euro before a late-morning recovery in
A year after a tussle between Beijing and hedge funds
betting against the currency, many major asset managers and
banks have called for the yuan to fall in 2017. Dealers said the
moves had the potential to squeeze many players out of those
positions just five days into January.
By midday in Europe, the yuan was just under half a percent
higher on the day against the dollar at 6.8364, having
gained almost 3 percent from lows hit on Tuesday.
"They have kick-started a move that has washed out
short-term speculative money," currency fund Millennium Global's
co-head of portfolio management, Richard Benson, said.
"This isn't economics. China desperately doesn't want a
repeat of what happened this time last year (and it seems)
attack is the best part of defence."
Many banks and investors have also lined up bets on a
broadly stronger dollar in the year ahead, trusting that a
Donald Trump White House will raise public spending, spur
inflation and encourage repatriation of corporate funds held
But the dollar's failure to move closer to parity with the
euro, or to 120 yen, since mid-December has fuelled doubts about
its ability to gain further, at least before Trump's
"The Trump bears kept quiet in December because there was no
point in fighting the battle then. They seem to be emerging
now," Benson said. "It is not just against the yuan. It looks to
me highly suspicious that dollar can't get below $1.0375 (per
The dollar's index against a basket of six major currencies
slipped to as low as 101.86, a three-week low,
just two days after it had hit a 14-year high of 103.82 on
Tuesday, when a strong reading from a U.S. manufacturing survey
boosted the greenback. It was a third of a percent lower on the
day at 102.33 by 1220 GMT.
The euro rose as much as 0.7 percent in Asia to
$1.0563 before trimming those gains to 0.2 percent. The dollar
still 0.6 percent weaker at 116.61 yen.
"Tighter (Chinese) capital controls are a stop-gap measure
that may plug one hole but won't prevent another one emerging
elsewhere. Further ... weakness seems inevitable to us," said
Societe Generale analyst Kit Juckes.
"However, challenging the market narrative that has seen
investors and traders pile into the dollar since early November
is enough to trigger a sharp cutback of longs, not just in
USD/CNH but across G10 currencies."
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Hideyuki Sano; Editing by Larry King)