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US dollar gains on Taipei forex, closes at NT$30.102

TAIPEI -- The U.S. dollar rose against the Taiwan dollar Wednesday, gaining NT$0.038 to close at the day's high of NT$30.102 as the greenback reversed earlier losses on the back of the local central bank's intervention, dealers said.

Despite the central bank's presence, the local foreign exchange market remained quiet on moderate trading volume as many traders stayed off the trading floor to await a decision by the European Central Bank in an upcoming policymaking meeting, the dealers said.

The greenback opened at NT$30.064 and moved to a low of NT$30.000 before rebounding. Turnover totaled US$795 million during the trading session.

The U.S. dollar opened flat, but soon fell into the red against the Taiwan dollar as traders here were encouraged by a move by the People's Bank of China (PBOC) to raise the reference rate for the yuan against the greenback to lower their U.S. dollar holdings, the dealers said.

The higher reference rate for the yuan led traders in the region to think the PBOC will loosen its grip on the Chinese yuan's upward fluctuations against the U.S. dollar, which could give a boost to other regional currencies like the Taiwan dollar, they said.

The momentum of the Taiwan dollar continued after the country reported an expansion in manufacturing activity for May, although the month's purchasing managers index (PMI) for May fell 1.6 points from the previous month to 58.6.

A PMI reading of above 50 points to expansion in manufacturing activity.

Before the local central bank's intervention, selling by foreign institutional investors in the local bourse let some air out of the Taiwan dollar during the session, the dealers said.

Foreign institutional investors served as net sellers of NT$1.54 billion (US$51.16 million)-worth of local shares to push down the weighted index on the Taiwan Stock Exchange by 0.03 percent at the close.

Turnover in the local foreign exchange market failed to expand, despite the central bank's intervention, as traders appeared anxious about the outcome of the ECB's policymaking meeting, the dealers said, adding that the market anticipates that the bank will cut interest rates to bolster the economy.

The market has even anticipated that the ECB will cut interest rates further as the eurozone has suffered little inflationary pressure, they said.

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