Yuan Gains as Stronger Fixing Outweighs Factory Gauge Decline

China’s yuan advanced for the first time in three days as a stronger central bank fixing outweighed a report indicating manufacturing is the weakest in 11 months.

The People’s Bank of China increased its reference rate by 0.08 percent to 6.1398 a dollar, the highest level since February. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, dropped to a three-week low on speculation the Federal Reserve will raise interest rates at a gradual pace. A preliminary Purchasing Managers’ Index by HSBC Holdings Plc and Markit Economics missed economist estimates.

The yuan advanced 0.17 percent to close at 6.2053 a dollar, China Foreign Exchange Trade System prices show. Its gap with the PBOC fixing was 1.1 percent, within the 2 percent limit. The currency has strengthened 1.04 percent so far in March, after four months of declines, as the nation’s leaders intensify efforts to push its global usage.

“The divergence between economic data and the yuan will continue as the Chinese authorities are quite keen to ensure that the currency remains stable,” said Khoon Goh, a Singapore-based foreign-exchange strategist at Australia & New Zealand Banking Corp. “The data clearly show economic activity continues to slow. However, it had a muted impact on the yuan because of the stronger fixing.”

China hopes the yuan will be part of the International Monetary Fund’s basket of reserve currencies, Premier Li Keqiang told the agency’s managing director in Beijing on Monday. He also pledged to further open up China’s capital markets and financial sector to the outside world.

China’s preliminary PMI for March fell to 49.2, missing the median estimate of 50.5 in a Bloomberg survey, according to data released Tuesday by HSBC and Markit. Numbers below 50 indicate contraction.

The offshore yuan rose 0.02 percent to 6.2083 a dollar in Hong Kong, according to data compiled by Bloomberg.

— With assistance by Tian Chen

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