Yuan Drops as U.S. Talks Begin on Weaker Global Jobs Data

Yuan forwards strengthened, rebounding from a four-month low, on speculation policies to stimulate China’s domestic demand will help the world’s second-largest economy withstand Europe’s debt crisis.

China will lower lenders’ reserve requirements tomorrow for the third time since November, freeing up cash for lending amid a slowdown. Gross domestic product increased 8.1 percent from a year earlier in the first quarter, the smallest gain since 2009, and growth is forecast to bottom at 8.0 percent this quarter before accelerating to 8.3 percent in the third quarter, based on the median estimates of economists surveyed by Bloomberg.

Twelve-month non-deliverable forwards gained 0.17 percent to 6.3817 per dollar in Shanghai, after falling 0.30 percent yesterday, according to data compiled by Bloomberg. The yuan fell 0.05 percent to 6.3252 in Shanghai, according to the China Foreign Exchange Trade System. The forwards traded at a 0.9 percent discount to the spot rate.

“There was quite a big move yesterday and there’s some pullback today,” said Sean Yokota, a Singapore-based currency strategist at UBS AG. “Growth will be above 8 percent and is nowhere close to a hard landing. We still think the yuan will appreciate by year-end.”

Fears of a “hard landing” are overdone, Standard Chartered Plc analysts Wei Li and Robert Minikin wrote in a note to clients today. The economy is forecast to expand 8.3 percent this year, which would be the slowest since 2001, a Bloomberg survey shows.

The People’s Bank of China set the yuan’s reference rate 0.04 percent lower at 6.3233 per dollar, weakening the fixing for a seventh day, the longest run of declines since May 2010. The currency is allowed to trade 1 percent either side of the reference rate. In Hong Kong’s offshore market, the yuan was little changed at 6.3247.

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