Yuan Declines on Weaker Reference Rate, Europe’s Debt Concern

The yuan dropped after policy makers weakened the daily fixing amid concern Europe’s debt crisis is slowing global growth, prompting some analysts to cut forecasts for appreciation in the currency.

The central bank lowered the yuan’s reference rate by 0.11 percent, the most since June 25, to 6.3193 against the greenback. The Dollar Index climbed the most in two weeks as reports showed services and manufacturing in the euro area shrank in June for a fifth month. The People’s Bank of China will probably curb currency gains as the economy slows, said Andy Ji, a Singapore- based strategist at Commonwealth Bank of Australia, the most- accurate forecaster of the yuan in the past six quarters.

“Asian currencies, including the yuan, are weaker today on disappointing data from Europe,” said Kenix Lai, a Hong Kong- based foreign-exchange analyst at Bank of East Asia Ltd. “Investors’ risk appetite remains fragile as they aren’t expecting global growth to regain momentum anytime soon.”

The yuan fell 0.09 percent to 6.3533 per dollar as of 10:46 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade as much as 1 percent on either side of the daily reference rate. One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 1.625 percent.

Commonwealth Bank’s Ji said in an interview this week that he’s currently reviewing forecasts for the yuan and will probably trim estimates.

South Africa’s central bank is considering adding the yuan as one of its reserve currencies because of increasing trade between the two nations, Deputy Governor Daniel Mminele said in Pretoria yesterday.

In Hong Kong’s offshore market, the yuan weakened 0.11 percent to 6.3540 per dollar. Twelve-month non-deliverable forwards were unchanged at 6.4015, a 0.76 percent discount to the onshore spot rate.

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