Yuan forwards gained the most in more than four months after official data showed U.S. services output grew faster than expected, damping concern a recovery in the world’s largest economy is losing steam.
The Dollar Index (DXY) fell 0.44 percent today as The Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the U.S. economy, rose to 53.7 last month from April’s 53.5, beating the median forecast of 53.4 in a Bloomberg survey. Readings above 50 signal expansion. The People’s Bank of China should cut interest rates at an appropriate time to boost confidence in the economy, according to a commentary on the front page of the state-run China Securities Journal today.
“The U.S. data helped improve market sentiment,” said Ronald Wan, managing director at China Merchants Securities in Hong Kong. “China is likely to seek a stable exchange rate until the export outlook gets brighter.”
Twelve-month non-deliverable forwards advanced 0.3 percent, the most since Jan. 26, to 6.4180 per dollar as of 4:47 p.m. in Hong Kong, a 0.8 percent discount to the onshore spot rate, according to data compiled by Bloomberg.
The yuan strengthened 0.06 percent to close at 6.3635 per dollar in Shanghai, according to the China Foreign Exchange Trade System. One-month implied volatility, a measure of exchange-rate swings used to price options, declined one basis point, or 0.01 percentage point, to 2.1415 percent. In Hong Kong’s offshore market, the yuan rose 0.06 percent to 6.3635.
The People’s Bank of China set the reference rate 0.06 percent weaker at 6.3261, lowering it for the first time in four days. The fixing is 0.65 percent stronger than yesterday’s closing spot price. The currency is allowed to trade as much as 1 percent either side of the reference rate.
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