Experts say fixing should narrow on sustainable basis

PBoC announced biggest adjustment to CNY fixing on record, moving the USDCNY fixing higher by 1.9%. The shift in determination of the midpoint highlights that the sharp deviation of market USDCNY expectations versus the fixing should now narrow on a more sustainable basis, says Barclays. 

"While the PBoC will likely still not wholly transfer determination of the currency to the market, it is a major step in that direction. However, if there are sharp moves on a day-to-day basis, we would expect the authorities to step in even if the market is implying a bigger move", said Barclays in a report on Friday.

It may be seen as something of a surprise that China has effectively devalued its currency, given the potential for a backlash from the US and risks ahead of the SDR review. However, with the CNY moves, a realignment towards market expectations, which could alleviatecriticism of the move in the fixing. This is not expected to be seen as an impediment towards SDR inclusion, adds Barclays.