Yuan Forwards Rise Most in Week on Signs Gain to Quicken Before U.S. Vote

Yuan forwards advanced the most in a week as Standard Chartered Plc raised its forecasts for the currency amid speculation China will allow appreciation to gather pace as foreign pressure mounts.

The central bank pledged in a statement today it will expand flexibility in the yuan, which has gained 2.1 percent since a two-year dollar peg was scrapped on June 19. U.S. lawmakers probably will vote Sept. 30 on a legislation that would let American companies petition for higher duties on imports from China to compensate for the effect of a weak currency, said Representative Chris Van Hollen, a Maryland Democrat and assistant to the Speaker.

“International pressure does remain a factor,” said Robert Minikin, senior foreign-exchange strategist at Standard Chartered Plc in Hong Kong. “The yuan’s nominal effective exchange rate has weakened significantly since the de-peg in June. This is creating a lot of potential for the yuan to get stronger against the dollar.”

Twelve-month non-deliverable forwards strengthened 0.36 percent to 6.5540 per dollar as of 5:42 p.m. in Hong Kong, reflecting bets the currency will climb 2 percent, according to data compiled by Bloomberg. The contracts touched 6.5525, matching the strongest level since October 2009.

The yuan’s spot rate rose 0.06 percent to 6.6868, according to the China Foreign Exchange Trade System. It touched 6.6825, the strongest level since the central bank unified official and market exchange rates at the end of 1993.

The central bank set the reference rate at 6.6936 per dollar, the strongest level since a fixed exchange rate ended in July 2005.

A purchasing managers’ index released by HSBC Holdings Plc and Markit Economics rose to 52.9 in September, from 51.9 in August. That was the highest level in five months.

Standard Chartered revised its end-2010 estimate for the currency to 6.64 per dollar from 6.75, while its end-2011 projection was changed to 6.36 from 6.50, according to a research note published today by strategists including Minikin.

The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan, has dropped 1.3 percent since China ended dollar peg in June. The currency has appreciated 1.6 percent against the dollar in the 12 trading days since Sept. 8.

--Judy Chen. Editors: James Regan, Ven Ram

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or xchen45@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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