Bloomberg News

Yuan Drops Most in Three Weeks as Europe Crisis Bolsters Dollar

January 09, 2012

Jan. 9 (Bloomberg) -- The yuan fell the most in nearly three weeks as concern Europe’s debt crisis will worsen prompted investors to cut holdings of emerging-market assets, bolstering the U.S. dollar.

German Chancellor Angela Merkel and French President Nicolas Sarkozy meet today to flesh out new rules for fiscal discipline in the euro area after Spain’s 10-year bond yield jumped the most in nearly 17 years last week. Central bank Governor Zhou Xiaochuan said China may expand the yuan’s trading band when capital inflows and outflows are balanced, the Xinhua News Agency reported yesterday. The Dollar Index, a gauge of the greenback’s strength, rose to its highest since September 2010.

“Today’s move is mainly a reflection of the dollar’s regained strength overseas,” said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “Zhou’s comments show the band may be widened pretty soon. There will be more two-way fluctuations in the yuan’s exchange rate.”

The yuan weakened 0.14 percent to 6.3186 per dollar as of 10:19 a.m. in Shanghai, the biggest decline since Dec. 20, according to the China Foreign Exchange Trade System. It strengthened 4.7 percent last year, the best performance among Asia’s 10 most-traded currencies excluding the yen.

The central bank set the reference rate at 6.3236 today, the weakest level since Dec. 22. The currency has been allowed to trade 0.5 percent either side of the so-called central-parity rate since May 2007.

In Hong Kong’s offshore market, the yuan dropped 0.12 percent to 6.3143 per dollar. Twelve-month non-deliverable forwards fell 0.06 percent to 6.3525, a 0.5 percent discount to the onshore spot rate.

--Judy Chen. Editors: James Regan, Ven Ram

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

%CNY

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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