Yuan Gains Most in a Week as PBOC Boosts Fixing on Dollar

China’s yuan strengthened as the central bank raised the currency’s daily fixing by the most in five months following an overnight slide in the dollar.

The currency posted the biggest gain in a week in onshore and offshore trading as the People’s Bank of China raised its reference rate by 0.14 percent to 6.1623 per dollar, the largest increase since Jan. 10. Export growth probably quickened to 6.7 percent in May from 0.9 percent the previous month, according to the median estimate in a Bloomberg News survey before data due June 8. The yuan has fallen 3.1 percent this year, the worst performance in Asia.

“The yuan’s fixing largely reflects a weaker dollar overnight,” said Ho Man Chun, a strategist at Bank of Communications Co.’s Hong Kong branch. “A weakening yuan this year, as part of China’s policy to stabilize growth, has helped the exporting industries.”

The yuan advanced 0.07 percent to close at 6.2502 per dollar in Shanghai, its biggest gain since May 29, China Foreign Exchange Trade System prices show. It rose as much as 0.19 percent earlier today. The onshore spot rate was 1.4 percent weaker than the fixing, within the 2 percent limit. The Bloomberg Dollar Spot Index was littler changed after sliding 0.38 percent yesterday that marked its biggest loss in a month.

The International Monetary Fund said yesterday China’s policy makers still have tools to keep economic growth at a medium to high level. The euro gained the most in two months after the European Central Bank yesterday unveiled unprecedented monetary-stimulus measures including negative deposit rates.

Offshore Market

A Purchasing Managers’ Index of China’s manufacturing from HSBC Holdings Plc and Markit Economics was 49.4 in May, compared with 48.1 in April, data showed this week. The official PMI for manufacturing was 50.8 last month, data showed on June 1. That compared with 50.4 in April and the 50.7 median forecast in a Bloomberg survey. The level of 50 is the dividing line of expansion and contraction.

In Hong Kong’s offshore market, the yuan climbed 0.19 percent to 6.2498 per dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards rose 0.16 percent to 6.2518. The contracts gained 0.07 percent this week and traded at a 0.02 percent discount to the onshore spot rate. The onshore and offshore spot rates fell less than 0.1 percent this week.

Todays’ drop in the yuan fixing reflects the dollar’s weakness and “does not represent a change of the yuan weakening policy,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB. “The near-term bias for spot onshore yuan and offshore yuan remains weaker.”

One-month implied volatility in the onshore yuan, a gauge of expected moves in the exchange rate used to price options, increased six basis points, or 0.06 percentage point, this week, data compiled by Bloomberg show. The gauge was steady at 1.3 percent today.

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