China Yuan Retreats From 19-Year High After PBOC Weakens Fixing

China’s yuan retreated from a 19-year high after the central bank lowered the daily reference rate by the most since August amid speculation the currency’s trading band will be expanded.

The yuan dropped the most in two months as the People’s Bank of China set the fixing 0.12 percent lower at 6.2416 per dollar. The band in which the yuan is allowed to fluctuate, currently 1 percent, will be widened “in the near future,” Deputy Governor Yi Gang said yesterday at an International Monetary Fund conference in Washington. The currency has risen 0.8 percent this year, compared with 1 percent for all of 2012.

“They are likely to prevent significant depreciation of the renminbi but also they will lean against the wind of appreciation,” said Ramin Toloui, global co-head of emerging markets in Singapore at Pacific Investment Management Co. Widening the trading band would allow China to alter investor perceptions that the yuan is a one-way bet, he said.

The currency fell 0.15 percent to 6.1813 per dollar in Shanghai, the biggest drop since Feb. 18, according to prices from the China Foreign Exchange Trade System. It reached 6.1723 yesterday, the strongest level since the government unified official and market exchange rates at the end of 1993.

Trading Band

The PBOC’s Yi told reporters in Washington yesterday that current market conditions make it “appropriate” to consider widening the band. “It’s good for the market,” he said. The PBOC broadened the range to 1 percent from 0.5 percent in April 2012.

The band will probably be widened this quarter, Credit Agricole CIB analyst Anthony Lam wrote in a research note today. Speculation of such a move may be “the force” driving gains in the yuan this week, he said.

In Hong Kong’s offshore market, the yuan declined 0.04 percent to 6.1790 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards were little changed at 6.2522, a 1.1 percent discount to the spot rate in Shanghai.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, rose one basis point, or 0.01 percentage point, to 1.49 percent.

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