Bloomberg News

China’s Yuan Declines Most Since November on Europe Debt Concern

October 11, 2011

Oct. 11 (Bloomberg) -- China’s yuan declined the most in 11 months as concern Europe’s debt crisis will escalate spurred demand for dollars.

The currency, which today touched a 17-year high, also retreated on speculation importers were taking advantage of recent gains to pay bills. European Central Bank President Jean- Claude Trichet said today Europe’s debt crisis threatens the region’s financial system and decisive action is needed to tackle the problem.

“Importers are buying the dollar and that puts some pressure on the yuan,” said Carlos Cheung, a foreign-exchange dealer at Bank of Communications Ltd. in Hong Kong. “The financial market is still volatile at the moment and there’s a lack of liquidity as investors are cautious.”

The yuan dropped 0.4 percent to close at 6.3750 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.3375 earlier, the strongest level since the country unified the official and market exchange rates at the end of 1993. The Shanghai Composite Index of shares closed 0.2 percent higher, after climbing as much as 2.9 percent.

In Hong Kong’s offshore market, the yuan slumped 1.2 percent to 6.4670 as of 5:12 p.m. local time, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards weakened 0.5 percent to 6.3800, a 0.08 percent discount to the onshore spot rate.

‘Fragile’ Sentiment

The European debt crisis has reached a “systematic dimension” and the sovereign stress has moved from smaller economies to some of the larger countries, Trichet told lawmakers in Brussels today in his capacity as head of the European Systemic Risk Board.

“The offshore yuan market is more sensitive to global sentiment, which remains fragile,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “Investors are locking in profits from the recent rebound in the offshore yuan given Trichet’s comments, adding to worries over the progress of solving the debt crisis.”

Standard Chartered Plc recommended investors close out a bet that the yuan will strengthen against the dollar, saying market conditions remain choppy and further gains in the greenback are likely, according to a note received today.

The People Bank’s of China set the daily reference rate 0.16 percent higher at 6.3483 per dollar, the strongest level since July 2005. The yuan is allowed to fluctuate 0.5 percent on either side of the daily fixing.

The nation plans to steer clear of “systemic shocks” that rapid yuan gains may cause and will likely take “considerable time” to further liberalize the exchange-rate regime, Wall Street Journal reported on its website today, citing former central bank adviser Fan Gang.

China’s economy may expand 9.4 percent this year, the Economic Information Daily reported today, citing Wang Wenbo, a deputy director at the National Bureau of Statistics. The world’s second-biggest economy grew 10.4 percent last year.

--Editors: Anil Varma, James Regan

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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