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Yuan Falls on Weaker PBOC Fixing, Bleaker U.S. Growth Outlook

The yuan weakened for a second day after the People’s Bank of China lowered the currency’s reference rate and the Federal Reserve cut its growth estimate for the U.S., worsening the outlook for Asian exports.

China’s central bank lowered its daily fixing for the yuan 0.06 percent to 6.3040 per dollar. Fed officials forecast yesterday the U.S. economy will expand 1.9 percent to 2.4 percent this year, less than an April projection of 2.4 percent to 2.9 percent. The Fed also said it will increase its so-called Operation Twist program, replacing short-term bonds with longer-term debt, by $267 billion through the end of 2012.

“The market remains undecided what to make of the Fed’s decision,” said Nizam Idris, head of Asian fixed income and currencies at Macquarie Bank Ltd. in Singapore. “The slightly weaker euro also led to the weaker yuan fixing.”

The yuan fell 0.07 percent to 6.3642 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade as much as 1 percent on either side of the daily fixing.

China’s manufacturing may shrink for an eighth month in June, matching the streak during the global financial crisis in a signal the government’s stimulus has yet to reverse the economy’s slowdown. The preliminary reading was 48.1 for a purchasing mangers’ index today from HSBC Holdings Plc and Markit Economics. Above 50 readings indicate expansion.

The yuan will remain “soft for the time being” against the dollar and appreciate by around 1 percent over the next six months, Barclays Capital said in a report yesterday. The authorities won’t allow yuan depreciation to mitigate weakening exports and will opt for export tax rebates and subsidized credit for exporters instead, it said.

Twelve-month non-deliverable forwards were steady at 6.4048 per dollar in Hong Kong, a 0.9 percent discount to the onshore spot rate, according to data compiled by Bloomberg. In Hong Kong’s offshore market, the yuan fell 0.07 percent to 6.3655, snapping a three-day advance.

One-month volatility, a measure of exchange-rate swings used to price options, fell five basis points to 1.85 percent.

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