Yuan Forwards Weaken on Concern Global Economic Growth Slowing

Yuan forwards fell the most in three weeks, projecting the least appreciation in seven months, as signs the global economic recovery is losing traction heightened risk aversion.

Growth in the world’s biggest economy is slowing in some regions, the U.S. Federal Reserve said yesterday. The World Bank cut its 2011 growth forecast for the global economy to 3.2 percent this week from a January estimate of 3.3 percent to reflect Japan’s earthquake and nuclear disaster as well as political unrest in the Middle East.

“A softer economic outlook means rates pressure isn’t as high as before,” said Philip Wee, a senior currency economist at DBS Group Holdings Ltd. in Singapore.

Twelve-month non-deliverable forwards dropped 0.34 percent, the most since May 23, to 6.3905 per dollar as of 5:03 p.m. in Hong Kong. The contracts reflected a 1.3 percent premium to the onshore spot rate, the smallest gap since Sept. 15, according to data compiled by Bloomberg.

The People’s Bank of China set the yuan’s reference rate 0.05 percent weaker at 6.4830 per dollar. The yuan isn’t allowed to move more than 0.5 percent on either side of the daily fixing. The lower reference rate also weighed on sentiment, Wee said.

The yuan was little changed at 6.4759 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency reached 6.4755 yesterday, the strongest level since China unified official and market exchange rates at the end of 1993. In Hong Kong’s offshore market, the yuan slipped 0.09 percent to 6.4805.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

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

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