Yuan Has Biggest Weekly Gain in Two Months on Recovery Signs

The yuan completed its best week in two months on optimism China’s economy is recovering from a seven-quarter slowdown.

The World Bank said in a report this week the world’s second-largest economy will grow 8.4 percent in 2013, faster than an October projection of 8.1 percent. China will increase the movement of the exchange rate “appropriately” to handle the latest round of measures by global central banks to pump money into markets to support growth, the official Xinhua News Agency said in an editorial.

“We continue to factor in a slight renminbi appreciation for the coming year,” said Ho Woei Chen, a Singapore-based economist at United Overseas Bank Ltd. “Growth is expected to pick up next year. The pace of appreciation will be modest.”

The yuan strengthened 0.24 percent this week, the most since the five days ended Oct. 12, to close at 6.2286 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That took this year’s advance to 1.05 percent. The currency rose 0.03 percent today.

The People’s Bank of China lowered the reference rate by 0.01 percent to 6.2881 per dollar today. The spot rate is allowed to trade as much as 1 percent on either side of the fixing.

Budget Talks

The Chinese currency is close to equilibrium level and has room for small, “sustained” appreciation in the long run, Shanghai Securities News reported today, citing a report from the government-run State Information Center.

Stock indexes fell around the world after House Republican leaders canceled a vote yesterday on Speaker John Boehner’s plan to allow higher tax rates for annual income above $1 million.

In Hong Kong’s offshore market, the yuan slipped 0.13 percent to 6.2208 per dollar today and was little changed this week, according to data compiled by Bloomberg. Twelve-month non- deliverable forwards slid 0.27 percent today to 6.3333, the biggest decline since May 16. The contracts traded at a 1.7 percent discount to the onshore spot rate.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, has fallen 98 basis points, or 0.98 percentage point, to 1.75 percent this year. That’s lower than the past five years’ average of 2.36 percent. It was little changed today.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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