Yuan Declines as PBOC Lowers Reference Rate Before Europe Summit

China’s yuan fell for the first time in four days as the central bank lowered the currency’s reference rate before European leaders meet today to discuss the region’s debt crisis.

The People’s Bank of China set its daily fixing 0.03 percent weaker at 6.3190 per dollar, still 0.6 percent stronger than yesterday’s close in Shanghai. The currency can trade as much as 1 percent on either side of the official rate. Chancellor Angela Merkel, speaking on the eve of Europe’s 19th summit on the debt crisis, said Germany’s constitution wouldn’t allow joint euro bonds.

“Investors aren’t optimistic that European leaders will come up with any remedies,” said Daniel Chan, executive vice-president at Glory Sky Global Markets Ltd. in Hong Kong. “China won’t let the yuan strengthen as it wants to support exports given how bad the external environment is.”

The yuan fell 0.03 percent to close at 6.3575 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It dropped as much as 0.21 percent to 6.3685 earlier, the most since April 5. The currency has declined 0.94 percent this quarter, its worst performance since a dollar peg ended in July 2005.

One-month implied volatility, a measure of exchange-rate swings used to price options, was unchanged at 1.8 percent today, down from 2.2 percent at the end of last month.

In Hong Kong’s offshore market, the yuan gained 0.02 percent to 6.3623 per dollar. Twelve-month non-deliverable forwards declined 0.07 percent to 6.4174, a 0.9 percent discount to the onshore spot rate.

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