The Chinese yuan fell toward a seven-month low after the central bank cut the currency’s reference rate and the US Federal Reserve boosted its assessment of the US economy.
The People’s Bank of China cut its daily fixing rate for the yuan by 0.09 percent to 6.1335 per US dollar. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 peers, climbed for a second day after the Fed described the expansion of the US economy as “solid,” while repeating a pledge to stay “patient” on raising interest rates.
The yuan declined 0.02 percent to 6.2490 per dollar yesterday at 10:04am in Shanghai, according to China Foreign Exchange Trade System prices.
The currency fell as low as 6.2542 earlier yesterday, matching Wednesday’s record 1.93 percent discount to the central bank’s reference rate. The maximum divergence allowed by the monetary authority is 2 percent. The yuan touched 6.2569 on Monday, the weakest level since June last year.
“The yuan fell today because the [US] dollar advanced overnight after the Fed showed optimism on the US economy,” China Merchants Bank Co (招商銀行) Shanghai-based senior analyst Liu Dongliang (劉棟樑) said. “The fundamentals of China’s economy, such as the PMI [purchasing managers’ index] and investment, will negatively impact the yuan’s exchange rate for at least the next half a year.”
China’s GDP rose 7.4 percent last year, the slowest full-year pace in 24 years, as a slump in commodity prices and a property downturn weighed on the economy. The official Purchasing Managers’ Index for manufacturing was probably at 50.2 for this month, compared with 50.1 last month, a Bloomberg survey shows. A figure above 50 indicates expansion.
The yuan, which weakened 2.4 percent last year, would not see a trend of depreciation, Market News International reported on Wednesday, citing former central bank adviser Li Daokui (李稻葵).
In Hong Kong’s offshore yuan trading market, the yuan declined 0.12 percent to 6.2582 per US dollar, data compiled by Bloomberg show.
Twelve-month non-deliverable forwards dropped 0.14 percent to 6.3665, taking their two-day loss to 0.34 percent. The contracts traded at a 1.8 percent discount to the spot rate.
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