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Chinese Yuan Drops Most in Almost Two Months as Dollar Rebounds

Oct. 12 (Bloomberg) -- China’s yuan declined the most in almost two months as the central bank set the reference rate weaker for the first time in three days after the dollar rebounded against the euro and the yen.

The People’s Bank of China set the central parity rate at 6.6775 per dollar, compared with 6.6732 yesterday. The U.S. Dollar Index traded on ICE Futures in New York, which tracks the greenback against currencies of six trading partners, has gained 0.5 percent this week.

“The yuan’s decline is mainly caused by the dollar’s temporary strength in the overseas market,” said Zhao Qingming, a senior analyst in Beijing at China Construction Bank Corp. “There is a high correlation between the yuan and the dollar’s broad movement.”

The yuan dropped 0.08 percent, the most since Aug. 23, to 6.6734 per dollar as of 5:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency has gained 2.3 percent this year.

The yuan’s 12-month non-deliverable forwards fell 0.36 percent to 6.4613 per dollar, reflecting bets the currency will strengthen 3.3 percent from the spot rate.

China wants the yuan to appreciate “in a gradual way” instead of a sharp revaluation that may hurt the economy, central bank Governor Zhou Xiaochuan said on Oct. 8. The nation scrapped the currency’s dollar peg on June 19 after keeping it steady for almost two years to help exporters cope with the global financial crisis. The central bank has managed the yuan against a basket of currencies that includes the euro, the yen and the British pound since July 2005.

In Hong Kong, the yuan halted a six-day gain, falling 0.08 percent to 6.5400.

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

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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