Bloomberg News

Yuan Completes Worst Week Since January on China Growth Concerns

May 18, 2012

The yuan had the biggest weekly drop since January on concerns over a default by Greece and a slowdown in the world’s second-largest economy.

New home prices in China declined from a year ago in 46 out of 70 cities last month, the statistics bureau data showed today. The People’s Bank of China cut lenders’ reserve requirements by 50 basis points, effective today. Greece’s credit rating was downgraded one level by Fitch Ratings yesterday on concern the country may fail to get the political support needed to sustain its euro membership.

“Risk appetite is worsening as people are worried Greece will leave the euro-zone,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “China’s reserve-ratio cut was taken negatively by investors as a sign that the economy is slowing quicker than expected.”

The yuan dropped 0.28 percent this week to close at 6.3284 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That is the worst week since Jan. 20.

In Hong Kong’s offshore market, the yuan fell 0.21 percent to 6.3260 per dollar this week. Twelve-month non-deliverable forwards declined 0.47 percent in five days to 6.3900, the biggest weekly decline since March 16, according to data compiled by Bloomberg. The contracts traded at a 0.96 percent discount to the onshore spot rate.

The central bank set the reference rate 0.04 percent stronger at 6.3209 today, strengthening it for the first time in eight days. The currency is allowed to trade as much as 1 percent on either side of the daily fixing. One-month implied volatility, a measure of exchange-rate swings used to price options, climbed four basis points, or 0.04 percentage point, to 2.2 percent.

China’s gross domestic product may expand 7.5 percent in the second quarter, from 8.1 percent in the previous three months, China Securities Journal said today, citing a report from the State Information Center. Goldman Sachs Group Inc. cut its forecast for China’s growth this quarter to 7.9 percent, from 8.5 percent, in note to clients today.

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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