Yuan Has First Weekly Gain in July on Bets China to Spur Growth

China’s yuan had its first weekly gain this month after the central bank strengthened the currency’s daily fixing and on speculation that Premier Wen Jiabao will implement measures to revive economic growth.

Wen said at least twice this week that the nation’s economy is yet to stabilize and reiterated the need for policy fine- tuning in coming months to spur growth. The People’s Bank of China raised the yuan’s reference rate 0.02 percent to 6.3112 per dollar today, the strongest level since June 21. The currency will continue weaken against the dollar in the second half and the government may have to intervene to ensure a stable exchange rate, China Securities Journal said, citing Liu Yuhui, a researcher at the Chinese Academy of Social Sciences.

“People are expecting Premier Wen will announce something more significant than what he has done and the foreign-exchange market is getting firmer,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore. “The risk-on environment also helps with no particular news from Europe.”

The yuan gained 0.08 percent this week to close at 6.3735 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency, which can trade as much as 1 percent on either side of the fixing, was little changed today. One- month implied volatility, a measure of exchange-rate swings used to price options, traded at 1.35 percent, from last week’s 1.45 percent.

In Hong Kong’s offshore market, the yuan slipped 0.02 percent today to 6.3720, limiting its weekly advance to 0.07 percent. Twelve-month non-deliverable forwards rose 0.12 percent this week to 6.4135, according to data compiled by Bloomberg. The contracts dropped 0.01 percent today, a 0.62 percent discount to the spot rate in Shanghai.

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