Yuan Weakens Most in July on Growth Concern, Euro Debt Crisis

China’s yuan dropped the most this month as concern growth in Asia’s largest economy is slowing and Europe’s debt crisis is worsening damped investor sentiment.

Data tomorrow will show the Chinese economy grew 9.3 percent last quarter, the least in almost two years, according to a Bloomberg survey. Twelve-month yuan forwards dropped by the most in four weeks after European finance ministers declined to rule out a temporary default on Greek bonds yesterday, struggling to contain the region’s debt crisis as bond yields in Italy and Spain surged. Annual Inflation reached a three-year high of 6.4 percent in June, a July 9 report showed.

“China’s slowing growth coupled with high inflation has added more concerns as investors are taking money off the table in Asia,” said Dariusz Kowalczyk, a senior economist at Credit Agricole CIB in Hong Kong. “Yuan forwards are reacting to the deterioration of sentiment in the global market on disappointing developments in Europe.”

The yuan weakened 0.08 percent to 6.4722 per dollar as of the 4:30 p.m. close in Shanghai, the biggest one-day decline since June 24, according to the China Foreign Exchange Trade System. In Hong Kong’s offshore market, the yuan fell 0.20 percent to 6.4780.

The People’s Bank of China set the currency’s reference rate 0.06 percent weaker at 6.4748 per dollar today. The yuan isn’t allowed to trade more than 0.5 percent on either side of the fixing.

Twelve-month non-deliverable forwards declined 0.31 percent to 6.4165 per dollar, the biggest daily loss since June 9. The contracts were trading at a 0.9 percent premium to the onshore spot rate.

‘Wait-and-See’

China’s monetary policy may enter a wait-and-see period as tightening takes effect and growth slows while benchmark interest rates in developed nations remain low, according to a commentary today in the China Securities Journal.

Consumer prices may peak in July and “quickly” slow in the fourth quarter on declines in commodity prices and strong summer harvests, 21st Century Business Herald reported today, citing Chen Dongqi, deputy head of the National Development and Reform Commission’s macroeconomic research institute.

Bloomberg

Leave a Reply