Offshore Yuan Drops Most in a Week as Central Bank Lowers Fixing

Updated on
  • PBOC reduces daily reference rate by most since Sept. 10
  • Fed officials still see U.S. interest rates rising this year

The yuan in Hong Kong fell the most in a week as China’s central bank lowered the onshore currency’s reference rate and Federal Reserve officials indicated that U.S. interest rates will be raised this year.

The People’s Bank of China cut the daily fixing by 0.11 percent, the most since Sept. 10, to 6.3676 a dollar. That’s after a gauge of the greenback’s strength rallied the most since July 1 on Friday. Three U.S. policy makers, including San Francisco Fed President John Williams, argued over the weekend that an increase in borrowing costs is still warranted at one of the central bank’s two remaining meetings of 2015. U.S. stocks tumbled Friday as the Fed’s decision not to tighten spurred concern about global growth.

"The yuan is being pressured by a stronger dollar and weaker sentiment from Western equity markets," said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong. "In the short term, the yuan will remain stable due to President Xi Jinping’s U.S. trip, the International Monetary Fund’s decision on the reserve currency basket and China’s goal of closing the gap between the onshore and offshore rates.”

The freely-traded offshore yuan dropped 0.27 percent, the most since Sept. 11, to 6.4044 a dollar as of 5:01 p.m. in Hong Kong, according to data compiled by Bloomberg. The spot rate in Shanghai, which is allowed to diverge from the PBOC’s fixing by a maximum 2 percent, weakened 0.08 percent to close at 6.3691, China Foreign Exchange Trade System prices show. That’s the biggest decline since Sept. 9.

The yuan should be more flexible, and the government has no intention of pegging it to the dollar in the long run, Jin Zhongxia, China’s representative to the IMF, said in Washington on Friday. China has adopted a series of measures to satisfy the IMF’s requirements to include the yuan in its Special Drawing Rights, Jin said. President Xi is visiting the U.S. Sept. 22-25.

Asia’s largest economy isn’t as weak as it may look, and “no collapse is nigh” in the aftermath of the stock-market plunge and currency devaluation, according to the third-quarter China Beige Book, published by New York-based CBB International. “Perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy,” CBB President Leland Miller wrote in the report.

— With assistance by Tian Chen

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