Yuan in Hong Kong Declines Most in a Week on Fed’s Rate Stance

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The yuan in Hong Kong posted its biggest drop in more than a week on speculation an increase in U.S. interest rates will damp demand for Chinese assets.

A gauge of dollar strength climbed to a three-month high Thursday after Federal Reserve Chair Janet Yellen reiterated the U.S. is on track to raise borrowing costs this year. China’s State Council pledged to stabilize the yuan’s exchange rate at a reasonable and balanced level, according to a statement on the government website Wednesday.

The offshore yuan weakened 0.02 percent to 6.2139 a dollar as of 4:41 p.m. in Hong Kong, its steepest decline since July 7, data compiled by Bloomberg show. The currency in Shanghai, which is constrained by a daily central bank fixing, was little changed and closed at 6.2095, according to China Foreign Exchange Trade System prices.

“Yellen’s repeated signals of a rate hike are very positive for the dollar, weighing on non-dollar assets including the yuan,” said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. “That said, the room for yuan depreciation is limited as China puts a stable exchange rate as its top priority.”

The People’s Bank of China this week opened up the nation’s interbank bond market wider to foreign central banks, sovereign wealth funds and global financial organizations as part of efforts to push the yuan’s case for inclusion in the International Monetary Fund’s reserves basket.

The PBOC lowered the yuan’s reference rate by 0.03 percent to 6.1173 a dollar on Thursday. The gap between the onshore spot rate and the fixing was 1.5 percent, within the 2 percent limit.

The Asian Development Bank cut China’s economic growth forecast for 2015 to 7 percent from a March projection of 7.2 percent. Gross domestic product rose 7 percent last quarter, official data showed Wednesday, beating the 6.8 percent median estimate in a Bloomberg survey. The government has set an annual target of about 7 percent growth for the year.

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