Yuan's fluctuations not undermine long-term stability

Limited room

Exchange rates are decided by a slew of factors, including a country's economic fundamentals, foreign exchange reserves and market sentiment.

The room for the Dollar Index to further climb this year is limited, as news of a potential US interest rate hike has been almost fully digested by the market.

Looking ahead, the yuan may come under short-term pressure but have limited room for further weakening, analysts agreed.

They also ruled out the possibility of substantial depreciation in the longer term as China continues to witness steady economic growth, progress in economic restructuring and a stable financial market.

"There is no basis for a sustained depreciation trend for the yuan, and we maintain the forecast of 6.98 for the end of 2017," said Huili Chang, analyst at China International Capital Corp.

Yu Yongding, economist and former central bank advisor, echoed Chang's view, saying that a country's currency never weakens substantially when the country keeps robust economic growth and boasts massive current account surplus and foreign exchange reserves, at least not on the record.

China's manufacturing Purchasing Managers' Index (PMI) rose to 51.7 in November from the previous month's 51.2, marking its strongest pace in more than two years.

The stronger-than-expected PMI data added to evidence that China's economy has been stabilizing and is on track to meet the government's target of 6.5 to 7 percent growth for the year.

The country's economy expanded 6.7 percent in the third quarter, unchanged from the previous two quarters.

Though China's foreign currency reserves fell to some extent, it still remains the world's largest reserve, accounting for 30 percent of the world's total.

Based on all these positive factors, the yuan's exchange rate will continue to be "kept basically stable at a reasonable and balanced level", PBOC deputy governor Yi Gang noted.