The yuan fell for a second day after the central bank lowered its reference rate as President Xi Jinping met U.S. Treasury Secretary Jacob L. Lew in Beijing for talks.
The People’s Bank of China set the yuan reference rate at a one-week low of 6.2758 per dollar today amid renewed turmoil in Europe after Cyprus proposed a levy on bank deposits. PBOC adviser Song Guoqing said China doesn’t need to tighten its policy as yet and there is a low chance of an interest-rate rise in the first half of this year.
“There’s too much uncertainty out there, so policy makers will prefer to be more cautious,” said Roy Teo, a currency strategist at ABN Amro Bank NV in Singapore. “When global growth picks up and there’s more clarity in Europe, China and others will be more tolerant of currency appreciation.”
The yuan was trading at 6.2166 per dollar as of 10:49 a.m. in Shanghai compared with 6.2158 yesterday, prices from the China Foreign Exchange Trade System show. It touched 6.2124 on Jan. 14, the strongest level since the government unified the official and market rates at the end of 1993. China limits the market rate to a 1 percent band on either side of the daily fixing rate.
After meeting with President Xi, Lew said the U.S. and China need to reduce trade barriers. He will meet Premier Li Keqiang tomorrow. Citigroup Inc. economist Paul Brennan said in Perth today that growth in the world’s second-largest economy will ease below 8 percent in the second half of this year.
In Hong Kong’s offshore market, China’s currency slipped 0.05 percent to 6.2105 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards were steady at 6.3080, a 1.4 percent discount to the spot rate in Shanghai.
One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, was unchanged at 1.25 percent.
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