Bloomberg News

Yuan Trades at Weak End of Range for 6th Day as Inflation Eases

December 07, 2011

Dec. 7 (Bloomberg) -- The yuan declined, testing the weaker end of its permitted trading range for a sixth day, on speculation policy makers will slow currency appreciation as inflation eases.

The People’s Bank of China lowered the daily reference rate by 0.01 percent to 6.3342 per dollar, almost 0.5 percent stronger than the currency’s close yesterday. Inflation slowed to 4.5 percent in November from a year earlier, the least in 13 months, according to median estimates of economists surveyed by Bloomberg before data due Dec. 9.

“The PBOC fixing is still too strong for investors to digest,” said Edmond Law, deputy head of foreign-exchange at BWC Capital Markets in Hong Kong. “With inflation easing and the need for dollars increasing toward year-end, the yuan spot rate will continue to face downside pressure.”

The yuan fell 0.03 percent to 6.3659 per dollar as of 9:54 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to fluctuate as much as 0.5 percent on either side of the PBOC’s fixing.

The yuan’s exchange rate has started to approach “equilibrium level,” Economic Information Daily reported today, citing Li Yang, a former adviser to China’s central bank.

In Hong Kong’s offshore market, the yuan gained 0.12 percent to 6.3713 per dollar. Twelve-month non-deliverable forwards rose 0.12 percent to 6.3778, a 0.2 percent discount to the onshore spot rate.

The yuan’s offshore rate strengthened, along with other Asian currencies, after the Financial Times reported that Europe is working to increase the amount of funds available to the region’s most-indebted nations.

-- Editors: Andrew Janes, Simon Harvey

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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