Yuan Forwards Fall by Most in 2 Weeks as Fed May End Bond Buying

China’s yuan forwards declined by the most in two weeks after the Federal Reserve indicated it will probably end its bond-buying program this year.

The People’s Bank of China weakened the reference rate by 0.07 percent, the most since Nov. 28, to 6.2897 per dollar. The yuan is allowed to trade as much as 1 percent on either side of the daily fixing. Fed members were divided between a mid- or end-of-year finish to the $85 billion a month of debt purchases, known as quantitative easing, according to minutes of last month’s meeting that were released yesterday in Washington.

“The minutes spurred speculation the Fed may end QE3 at an earlier time than expected, which will help prevent an increase in dollar supply in the market,” said Liu Dongliang, a senior analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender.

Twelve-month non-deliverable forwards dropped 0.09 percent to 6.3195 per dollar as of 4:56 p.m. in Hong Kong, a 1.4 percent discount to the onshore spot rate, according to data compiled by Bloomberg. That was the biggest decline since Dec. 21. The contracts strengthened 0.26 percent this week.

The yuan traded at 6.2303 in Shanghai, unchanged from the close on Dec. 31, according to the China Foreign Exchange Trade System. Mainland financial markets have been shut for the last three days for public holidays. One-month implied volatility, a measure of expected moves in exchange rates used to price options, declined six basis points, or 0.06 percentage point, to 1.45 percent, according to data compiled by Bloomberg.

In Hong Kong’s offshore market, the yuan fell 0.14 percent to 6.2145 per dollar, according to data compiled by Bloomberg. That was the biggest drop since Dec. 21.

--Judy Chen. Editors: Andrew Janes, Simon Harvey

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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

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