China’s yuan fell the most in six weeks as the central bank lowered the currency’s reference rate for a fifth day, the longest run of cuts this year.
The People’s Bank of China reduced the fixing 0.07 percent to 6.1807 per dollar, the lowest since May 30. The onshore spot rate is allowed to diverge from the reference by a maximum of 1 percent. The Dollar Index rose 0.4 percent, taking its four-day gain to 2.5 percent, the biggest since November 2011, after the Federal Reserve indicated last week it may begin winding down bond purchases that spurred flows to emerging markets. The PBOC said yesterday it’ll keep the yuan exchange rate basically stable at a reasonable, balanced level.
The yuan declined 0.18 percent to close at 6.1451 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. That’s the biggest drop since May 10. The currency has strengthened 1.4 percent this year, the sole gainer among 24 emerging-market currencies tracked by Bloomberg.
“There’s been stronger dollar demand on concerns the U.S. will taper stimulus and as China’s growth is slowing,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “Yuan appreciation is likely to take a pause for now.”
Fed Chairman Ben S. Bernanke said June 19 the central bank could taper its $85 billion of monthly bond purchases this year and end the program in 2014 if the U.S. economy improves in line with its projections.
China International Capital Corp. cut its 2013 forecast for expansion in Asia’s biggest economy to 7.4 percent from 7.7 percent, while Goldman Sachs Group Inc. lowered its projection to 7.4 percent from 7.8 percent. Growth held below 8 percent for each of the last four quarters, the first time that has happened in at least 20 years, official data show.
The Bank of England and the People’s Bank of China signed a three-year currency swap line of 200 billion yuan ($33 billion), according to a statement published by the U.K. central bank on June 22. China may allow basic yuan capital account convertibility by 2015, Shanghai Securities News reported today, citing Zhang Chenghui, head of the finance institute under the State Council’s Development Research Center.
In Hong Kong’s offshore market, the yuan fell 0.18 percent to 6.1422 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards slid 0.33 percent to 6.3180, a 2.7 percent discount to the onshore spot.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased five basis points, or 0.05 percentage point, to 1.94 percent.
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