The yuan in Hong Kong completed the worst week since June as the People’s Bank of China set the daily exchange-rate fixing at the lowest level since Jan. 9.
The PBOC cut the reference rate by 0.04 percent to 6.2805 per dollar, weakening it for a second day, spurring speculation the central bank seeks to cap gains as a four-month slide in the yen makes Japanese exports more competitive in global markets. The Bank of Japan set a 2 percent inflation target this week, with a planned 13 trillion yen a month ($143 billion) in securities purchases on hold until January 2014. A spokesman for German Chancellor Angela Merkel’s party said on Jan. 22 that Japan’s actions risked retaliation by other Group of 20 nations.
“China is taking a cautious stance on the yuan’s rate as the impact on exports from rapid yen depreciation isn’t clear,” said Daniel Chan, executive vice-president at Glory Sky Global Markets Ltd. in Hong Kong.
The Chinese currency fell 0.13 percent today, extending the weekly loss to 0.38 percent, to 6.2128 per dollar as of 4:37 p.m. in Hong Kong, according to data compiled by Bloomberg. The spot rate fell for a sixth day in the offshore market.
In Shanghai, the yuan dropped 0.08 percent this week to close at 6.2205 per dollar, according to the China Foreign Exchange Trade System. The currency, which declined 0.04 percent today, is allowed to trade as much as 1 percent on either side of the central bank’s daily fixing.
One-year interest rate swaps pegged to the three-month Shanghai interbank offered rate fell this week after the PBOC announced plans to start daily short-term liquidity operations. Credit Agricole CIB said the so-called SLO will reduce the interest-rate advantage on the yuan.
“Liquidity concerns have been eased with the central bank’s injections through reverse repos,” said Chan.
Twelve-month non-deliverable forwards weakened 0.16 percent today to 6.2958 per dollar in Hong Kong, a 1.2 percent discount to the onshore spot rate, data compiled by Bloomberg show. One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 14 basis points, or 0.14 percentage point, this week to 1.26 percent, according to data compiled by Bloomberg.
The Bank of England is ready “in principle” to agree on a yuan swap line with the Chinese central bank, which would need a mutually agreeable format, Chris Salmon, Bank of England’s chief cashier said yesterday.