Yuan Steady as Flash PMI Hints at Slower Manufacturing Expansion

The yuan was little changed, after a run of four weekly declines, as a report suggested Chinese manufacturing growth is slowing this month.

A preliminary reading for the Purchasing Managers Index published by HSBC Holdings Plc and Markit Economics was 50.4, data showed today. That compares with the 52.3 final reading for January and the 52.2 median estimate of 11 analysts surveyed by Bloomberg. A number above 50 indicates expansion. The Communist Party’s Central Committee will meet Feb. 26-28 to discuss policy changes, while the Bank of England said Feb. 22 it plans to sign a deal soon on a three-year currency swap arrangement with the People’s Bank of China.

“The Flash PMI surprised the market on the downside while China’s leadership will soon hold major annual meetings,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “The yuan is likely to be rangebound in the short term as investors are waiting for clearer policy directions.”

The yuan closed at 6.2339 per dollar in Shanghai, little changed from last week’s close of 6.2351, prices from the China Foreign Exchange Trade System show. The currency lost 0.32 percent in the last four weeks.

The People’s Bank of China cut the reference rate by 0.03 percent to 6.2892, the weakest since Feb. 7. Spot prices are allowed to diverge a maximum 1 percent from the fixing.

Dim Sum bonds returned 0.3 percent in the five days through Feb. 22, contributing to a record 25-week winning streak in which the securities gained 4.3 percent, a Bank of China index shows. The securities, which are denominated in yuan and traded in Hong Kong, yield 3.97 percent on average.

The currency climbed 0.05 percent to 6.2310 per dollar in Hong Kong’s offshore market, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards were steady at 6.3240, a 1.4 percent discount to the onshore spot rate.

One-month implied volatility in the yuan, a measure of expected moves in the exchange rate used to price options, climbed five basis points, or 0.05 percentage point, to 1.33 percent this week, according to data compiled by Bloomberg.

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