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Yuan Halts Five-Day Gain as Central Bank Weakens Reference Rate

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Dec. 24 (Bloomberg) -- China’s yuan halted a five-day advance after the central bank lowered the currency’s reference rate amid concern exports to the U.S. will suffer unless American lawmakers agree on budget revisions.

The People’s Bank of China cut the fixing by 0.05 percent to 6.2913 per dollar today, the weakest since Dec. 14. The spot rate is allowed to trade as much as 1 percent on either side of the fixing. The Dollar Index climbed 0.3 percent in two trading days as House Republican leaders canceled a vote on Speaker John Boehner’s plan to allow higher tax rates for annual income above $1 million. Senator Joseph Lieberman said on CNN the odds are that both parties won’t be able to reach a compromise.

“There’s a bit of risk-off sentiment on the U.S. budget talks, even though it will be solved at the end of the day,” said Patrick Cheng, a foreign-exchange analyst at Haitong International Securities Co. in Hong Kong. “The yuan will only appreciate modestly as the dollar is likely to strengthen further next year.”

The yuan slipped 0.06 percent to 6.2335 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency has gained 0.82 percent this quarter, contributing to a 1 percent advance for the year. That compares with a 4.7 percent appreciation in 2011.

Chinese banks bought $136.6 billion of foreign currency from their clients and sold $118.1 billion in November, leaving a surplus of $18.5 billion, the State Administration of Foreign Exchange said today.

In Hong Kong’s offshore market, the yuan fell 0.02 percent to 6.2238 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards climbed 0.05 percent to 6.3293, a 1.5 percent discount to the onshore spot rate.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, has fallen 93 basis points, or 0.93 percentage point, to 1.8 percent this year. That’s lower than the past five years’ average of 2.34 percent. The gauge increased five basis points today.

To contact the reporter on this story: Fion Li in Hong Kong at

To contact the editor responsible for this story: James Regan at

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