Yuan Weakens as PBOC Cuts Fixing to Two-Week Low Amid Slowdown

China’s yuan fell for a second day as the central bank set the currency’s reference rate at a two-week low amid concern economic growth is slowing.

The People’s Bank of China cut the fixing 0.03 percent to 6.1807 per dollar, the weakest level since June 24. The Dollar Index, which tracks the greenback against six major currencies, climbed to a three-year high today after better-than-expected U.S. jobs data spurred speculation the Federal Reserve will scale back monetary stimulus. The yuan will weaken in the remainder of 2013 as a slowing economy damps demand for China’s stocks and bonds, according to Westpac Banking Corp, the most-accurate forecaster in Bloomberg Rankings.

“The dollar strength and slower Chinese growth are weighing on the yuan,” said Daniel Chan, wealth management director at Hong Kong-based China Silver Global Holdings Ltd. “The yuan could depreciate from current levels in the next few months as a weaker currency is more desirable for exports.”

The yuan declined 0.02 percent to close at 6.1337 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. The currency has lost 0.13 percent in two trading days. The spot rate was at a 0.77 percent premium to the fixing, compared with the maximum allowed divergence of 1 percent.

Exports probably rose 3.7 percent in June, a Bloomberg survey showed before data due July 10, quickening after a 1 percent gain in May while still trailing last year’s average growth of 8.3 percent. The yuan advanced 1.5 percent versus the dollar this year, making it the sole gainer among Asian currencies, data compiled by Bloomberg show.

Offshore Market

Switzerland plans to bid to become an offshore yuan trading center in Europe, Economy Minister Johann Schneider-Ammann said in Beijing on July 6. Treasury Secretary Jacob J. Lew and Secretary of State John Kerry will meet Chinese government officials July 10-11 for the fifth round of the bilateral Strategic and Economic Dialogue.

Twelve-month non-deliverable forwards dropped 0.05 percent to 6.2990 per dollar, according to data compiled by Bloomberg. The contracts are at a 2.6 percent discount to the spot rate. The offshore yuan traded in Hong Kong gained 0.02 percent to 6.1379 today, after the biggest one-day drop in five weeks on July 5.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, decreased two basis points, or 0.02 percentage point, to 1.63 percent, data compiled by Bloomberg show.

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