Yuan forwards completed their biggest weekly gain in 20 months on speculation China will permit more appreciation to help damp inflation as the economy improves.
The People’s Bank of China set the reference rate stronger for a second day after official data on Dec. 1 showed China’s manufacturing grew at a faster pace for a fourth straight month in November. The currency slid in each of the last three weeks as concern Europe’s debt crisis will worsen and military tensions on the Korean peninsula bolstered demand for dollars.
“The economic fundamentals are quite supportive of yuan gains,” said Emmanuel Ng, a currency strategist at Oversea-Chinese Banking Corp. in Singapore. “Plus, in the past week, we have seen some stabilization on the euro-zone front.”
Twelve-month non-deliverable forwards climbed 1 percent in the week to 6.5015 per dollar as of 6:14 p.m. in Hong Kong, the biggest gain since March 2009, according to data compiled by Bloomberg. The contracts reflect bets the currency will strengthen 2.5 percent in a year from the spot rate of 6.6633.
The central bank’s reference rate was fixed at 6.6605 per dollar, 0.13 percent higher than yesterday. The yuan is allowed to trade up to 0.5 percent either side of the rate.
The Purchasing Managers’ Index rose to 55.2 in November from 54.7 in October, China’s logistics federation said on Dec. 1. That was more than the 54.8 median estimate of economists surveyed by Bloomberg News. A similar index released by HSBC Holdings Plc also increased.
The U.S. Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, dropped 0.5 from Nov. 26, following gains in the previous three weeks.