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Yuan Within 0.03% of Weak End of Band Amid Easing Speculation

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Yuan Within 0.03% of Weak End of Band Amid Easing Speculation

China’s yuan traded within 0.03% of the weak end of its trading band amid speculation the central bank will ease monetary policy further while allowing the currency to weaken gradually.

Data released Wednesday that suggested manufacturing picked up this month may have been distorted by the Feb. 18-24 Lunar New Year holiday and an interest-rate cut is still likely in the first quarter, Goldman Sachs Group Inc. economists led by Song Yu wrote in a note. The People’s Bank of China raised the yuan’s fixing by 0.01 percent Thursday, after weakening it by 0.09 percent on the previous day to a three-week low.

The yuan was little changed from Wednesday to close at

6.2589 a dollar, China Foreign Exchange Trade System prices show. The gap with the central bank’s reference rate of 6.1379 was 1.97 percent at the close, after earlier widening to 1.9958 percent, near the 2 percent limit.

“It seems that they are leaning toward a weaker yuan but they are doing it very, very slowly and very gradually,” said Eddie Cheung, a foreign-exchange strategist at Standard Chartered Plc in Hong Kong, referring to the PBOC. “There’s probably going to be some mild intervention just to make sure we don’t hit that top band.”

The offshore yuan rose 0.06 percent to 6.2677 a dollar in Hong Kong, trading 0.14 percent weaker than the onshore rate, according to data compiled by Bloomberg. The gap was 0.4 percent Feb. 17. The spread had previously widened due to a lack of corporate liquidity before the holiday, Cheung said.

Potential Rebound

The flash Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics, a gauge of factory output, came in at 50.1, exceeding the median estimate of 49.5 in a Bloomberg survey and up from January’s final reading of 49.7, data showed Wednesday. Numbers above 50 indicate expansion.

The PBOC reduced all banks’ reserve-requirement ratios for the first time since 2012 on Feb. 5, after lowering rates in November.

“The yuan may rebound slightly next week barring any negative news,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “But that will be limited as people were earlier speculating over a rate cut or RRR cut before the Lunar New Year holiday. That didn’t happen, but people are still wondering whether that will be needed.”

Trading volumes will probably remain low as many companies have yet to reopen after the holiday, Lee said.

Twelve-month non-deliverable yuan forwards traded at

6.3869, from 6.3875 at Wednesday’s close. The contracts were 2 percent weaker than the onshore spot rate.