(Yicai Global) Feb. 6 -- The Chinese yuan sank 355 basis points against the US dollar today after better-than-expected US employment data were released last week. Investors who take a long position on the Chinese yuan, or buy it with the expectation that it will gain in value, could cause the redback to weaken more in which case they risk losing money, analysts say.

The US dollar index jumped 1.2 percent to 102.83 on Feb. 3, the same day that the US Department of Labor announced that non-farm payrolls surged by 517,000 in January, the largest increase since July last year and far exceeding the estimated gain of 187,000 by Dow Jones economists.

This trigged a dramatic softening of the yuan, which was trading at a mid-price of 6.7737 against the US dollar today.

“The yuan exchange rate appreciated too quickly at the beginning of the year, so there may be a relapse,” Zhu Yanhua, an international business expert at Bank of Communications, told Yicai Global. Investors should watch out for the gap left from the previous high, he added.

“With the Russia-Ukraine conflict showing signs of expansion, the US dollar index's continuous heavy losses may slow down.

"The US Federal Reserve's latest move on interest rates was in line with expectations, and it will take a few weeks for the next expectations on interest rates to take shape, which will be contingent on economic performance,” he added.

The yuan's rapid appreciation at the beginning of the year was driven by the depreciation of the US dollar and expectations of a recovery in China, Liu Jie, head of macro strategy at UK lender Standard Chartered's China arm, told Yicai Global earlier. Previously overseas hedge funds had relatively light long positions on the yuan, and some had already made partial cover.

For the full year, international institutions are generally bullish on the yuan, and the redback is expected to appreciate to 6.5 by September. Swiss banking giant UBS Group said in its latest update that the recent strengthening of the US dollar is expected to be mild and temporary as unexpectedly good economic data is coming from the eurozone together with a full recovery in China.

Editor: Kim Taylor