Bloomberg News

Yuan Declines Amid Fitch Warning of European Debt Contagion

November 17, 2011

Nov. 17 (Bloomberg) -- China’s yuan dropped for the first time in three days after Fitch Ratings said Europe’s debt crisis may pose a “serious risk” to U.S. banks, fanning fears of contagion and cooling demand for emerging-market assets.

Fitch said yesterday the credit outlook for the U.S. banking industry may worsen unless the crisis is “resolved in a timely and orderly manner.” Standard Chartered Plc lowered its forecast for yuan gains next year, citing a “broad-based” case for slower appreciation because of a likely narrowing in the China’s current-account surplus and diminishing inflation pressures. The People’s Bank of China set its daily reference rate at 6.3553 per dollar, the weakest level since Oct. 21.

“The Fitch warning highlighted the risks in the global environment and China may have little room for yuan appreciation with exports slowing down and inflation easing,” said Dariusz Kowalczyk, a Hong Kong-based economist at Credit Agricole CIB.

The yuan fell 0.12 percent to 6.3530 per dollar as of 10:16 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade up to 0.5 percent on either side of the daily reference rate.

In Hong Kong’s offshore market, the yuan slipped 0.03 percent to 6.3550 per dollar. Twelve-month non-deliverable forwards gained 0.09 percent to 6.3280, a 0.4 percent premium to the onshore spot rate.

Standard Chartered now sees the Chinese currency advancing 0.6 percent in each of the first two quarters of 2012, less than the 1 percent advances it previously predicted. The bank revised its exchange-rate forecast for the end of next year to 6.12 per dollar from 6.06, according to an e-mailed note sent to clients today.

WTO Meeting

U.S. President Barack Obama kept up his pressure on China’s foreign-exchange policy and trade practices on Nov. 14, saying “enough is enough” on what the U.S. views as a too-slow appreciation of the yuan.

The World Trade Organization is likely to discuss rule changes in the first half of next year that would allow members to protect their industries from trade imbalances stemming from currency fluctuations, Keith Rockwell, spokesman for the Geneva- based trade body, was quoted as saying in a Wall Street Journal online report dated Nov. 15.

Criticism of China’s exchange rate is “groundless and unreasonable” and the value of the yuan isn’t the cause of lopsided trade flows, Commerce Ministry spokesman Shen Danyang said in Beijing yesterday. The nation’s trade surplus fell to less than 1.4 percent of gross domestic product in the first 10 months of the year from under 3 percent in 2010, Shen said at a regular briefing.

--Editors: James Regan, Sandy Hendry

To contact the reporter on this story: Fion Li in Hong Kong at

To contact the editor responsible for this story: Sandy Hendry at

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