Yuan Forwards Drop Second Day as IMF Cuts Global Growth Forecast

Yuan forwards dropped for a second day after the central bank lowered its daily currency fixing and the International Monetary Fund cut global growth forecasts.

The People’s Bank of China set the reference rate 0.03 percent weaker at 6.2783 per dollar today. The IMF said yesterday it expects 3.5 percent growth this year, less than an October forecast of 3.6 percent. It maintained its China estimates at 8.2 percent for this year and 8.5 percent in 2014, before data today that suggested the nation’s manufacturing is expanding at the fastest rate in two years.

“Investors are turning a bit cautious about the impact on China due to the uncertain global growth outlook,” said Stella Lee, president at Success Wealth Management Ltd. in Hong Kong. “The yuan won’t fall much, but gains will be limited in the near term.”

Twelve-month non-deliverable forwards fell 0.1 percent to 6.2870 per dollar as of 10:11 a.m. in Hong Kong, a 1.1 percent discount to the onshore spot rate, data compiled by Bloomberg show. The currency weakened 0.06 percent to 6.2070 in Hong Kong’s offshore market, sliding for a fifth day.

In Shanghai, the yuan slipped 0.02 percent to 6.2192 per dollar, according to the China Foreign Exchange Trade System. The currency is allowed to trade as much as 1 percent on either side of the central bank’s fixing.

A preliminary reading for a Purchasing Managers’ Index that gauges Chinese manufacturing was 51.9 this month, from 51.5 in December, according to HSBC Holdings Plc and Markit Economics. A figure above 50 indicates expansion.

China’s new risk is how to prevent overheating, which would stoke inflation and asset bubbles, Fan Gang, a former central bank adviser, said yesterday in an interview in Davos, Switzerland. Fan said he sees “modest” appreciation in the yuan against the dollar as money flows in from other countries.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell three basis points, or 0.03 percentage point, to 1.28 percent, according to data compiled by Bloomberg.

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

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

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