The yuan strengthened the most in a month as Greece moved closer to completing its sovereign debt restructuring and a government inflation report suggested China has room to support growth in the economy.
Consumer prices climbed 3.2 percent in February from a year earlier, lower than a 3.4 percent median estimate in a Bloomberg survey of economists and the 4.5 percent increase in January. Private investors agreed to swap about 85 percent of their Greek government bonds for new securities in a deal that closed yesterday, according to a banker briefed on the results. The People’s Bank of China raised the yuan’s reference rate by 0.26 percent, the most since Oct. 28, to 6.3073 today.
“Easing inflation is good news for China’s economy as it means more room for policy easing,” said Daniel Chan, chief economist at BWC Capital Markets in Hong Kong. “The expectations that Greece could restructure its debt lifted the yuan today. However, the yuan remains sluggish this year, showing how cautious the central bank is on global outlook.”
The yuan rose 0.09 percent, the most since Feb. 8, to close at 6.3107 per dollar in Shanghai, limiting this week’s loss to 0.2 percent, according to the China Foreign Exchange Trade System. The currency is allowed to trade 0.5 percent on either side of the daily fixing.
One-month implied volatility, a measure of exchange-rate used to price options, rose 45 basis points this week to 2.1 percent, after PBOC Governor Zhou Xiaochuan said the nation may “appropriately” widen the yuan’s trading band.
In Hong Kong’s offshore market, the yuan gained 0.04 percent to 6.3040. Twelve-month non-deliverable forwards were little changed at 6.2958 today, a 0.24 percent premium to the onshore spot rate, according to data compiled by Bloomberg. The contracts declined 0.2 percent this week.
The yuan will keep rising 3 percent to 5 percent in the next couple of years, said Stephen Roach, a professor at Yale University and the former non-executive chairman for Morgan Stanley in Asia. The currency fell 0.3 percent this year, after advancing 4.7 percent in 2011.
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