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China Yuan Declines as PBOC Fixing Forces Retreat for Second Day

Dec. 7 (Bloomberg) -- China’s yuan dropped after the central bank cut the fixing for a second day to a level that meant the currency had to weaken to stay within its trading band.

The People’s Bank of China lowered the reference rate by 0.03 percent to 6.2930 against the greenback, following a 0.6 percent advance in the Dollar Index yesterday. The fixing is 1.03 percent weaker than yesterday’s close, while the yuan is allowed to trade a maximum of 1 percent on either side of it.

“The central bank is like a stabilizer now as it doesn’t want a rapid appreciation or depreciation of the currency,” said Hu Yifan, chief economist at Haitong International Securities Co. in Hong Kong, who previously worked at the World Bank. “There are still solid fundamentals for yuan appreciation within three years, during which it could gain up to 2 percent annually against the dollar.”

The yuan dropped 0.03 percent to close at 6.2301 per dollar in Shanghai, according to the China Foreign Exchange Trade System. That’s 1 percent more than today’s reference rate. The currency was little changed for the week. One-month implied volatility, a measure of expected moves in exchange rates used to price options, climbed 10 basis points, or 0.1 percentage point, to 1.6 percent this week.

Consumer-price gains may have accelerated to about 2.2 percent from a year earlier in November, according to a front-page commentary in the China Securities Journal written by Cao Shuishui today. The statistics bureau will release inflation data on Dec. 9.

In Hong Kong’s offshore market, the yuan gained 0.02 percent today to 6.2095 per dollar, according to data compiled by Bloomberg. It strengthened 0.08 percent for the week. Twelve-month non-deliverable forwards were little changed today and advanced 0.1 percent this week to 6.3165. The contracts traded at a 1.4 percent discount to the onshore spot rate.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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