China's yuan hits strongest so far this year thanks to more dovish Fed

A customer holds a 100 Yuan note at a market in Beijing, August 12, 2015. REUTERS/Jason Lee

SHANGHAI (Reuters) - China's yuan CNY=CFXS touched its strongest level so far in 2016 on Thursday, as the dollar eased all round after the Federal Reserve reduced its own expectations for the number of U.S. interest rate increases likely over the next nine months.

Hitting 6.4856 to the dollar, the strengthening of the yuan by around 0.5 percent Thursday was broadly in line with other major currencies gains against the U.S. currency .DXY.

“Also the yuan’s appreciation is in the interest of the authorities,” said a trader at an Asian bank in Shanghai.

After sharp declines in December and January which rattled global markets, the yuan has been on a firming trend recently as the dollar’s retreat eased the impetus for capital outflows and the People’s Bank of China maintained its defense of the yuan against speculators.

Nonetheless, analysts caution that China’s economy still needs more monetary support, which could put renewed pressure on the currency in the months ahead.

Reporting by Nathaniel Taplin; Editing by Simon Cameron-Moore