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China’s Yuan Declines as Central Bank Lowers Reference Rate

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June 5 (Bloomberg) -- China’s yuan dropped toward a 20-month low after the central bank lowered the currency’s fixing amid a rise in the dollar.

The People’s Bank of China reduced its reference rate by 0.02 percent to 6.1708 against the greenback after the Bloomberg Dollar Spot Index rose to the highest level in two months yesterday. The European Central Bank will today cut its deposit rate to negative from zero, according to 44 of 50 economists in a Bloomberg survey. U.S. initial jobless claims increased last week and non-farm payrolls growth slowed in May, data today and tomorrow will show, according to separate surveys.

“If you look at the global environment, there’s the ECB meeting today and the U.S. non-farm payrolls tomorrow,” said Suan Teck Kin, a Singapore-based economist at United Overseas Bank Ltd. “You’ll probably see a bit of dollar strength, so that could push up the dollar against the yuan.”

The yuan declined 0.07 percent to 6.2548 per dollar in Shanghai, China Foreign Exchange Trade System prices show. That’s 0.2 percent off the 6.2676 touched on April 30, the weakest level since October 2012. The currency has lost 3.2 percent this year, the worst performance in Asia.

Nomura Holdings Inc. forecasts the yuan will rise 3 percent by the year-end on improving economic data, Craig Chan, its head of Asia ex-Japan for foreign-exchange strategy, said at an investment forum in Singapore yesterday. China’s exports probably rose 6.6 percent in May from a year ago, compared with a 0.9 percent increase in the previous month, according to the median estimate in a Bloomberg survey before data due June 8.

In Hong Kong’s offshore market, the yuan slid 0.06 percent to 6.2585 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards declined 0.14 percent to 6.2665, trading at a 0.19 percent discount to the spot rate in Shanghai. The onshore yuan was 1.3 percent weaker than the fixing, within the 2 percent daily limit.

One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, increased six basis points, or 0.06 percentage point, to 1.31 percent, data compiled by Bloomberg show.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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