Yuan Outpaced by Euro, Pound Sees China’s Currency at 2014 Low

  • Yuan falls most in two weeks against trade-weighted basket
  • Repo rate increases for third day to highest in a month

The yuan declined to the lowest level since October 2014 against a basket of currencies as easing concern over a U.K. exit from the European Union propelled gains in the euro and the British pound.

A Bloomberg replica of the CFETS RMB Index dropped 0.3 percent against a trade-weighted basket, the biggest decline in two weeks. The People’s Bank of China set the reference rate 0.1 percent stronger, compared with a 0.9 percent, two-day decline in the Bloomberg Dollar Spot Index.

A poll showed the campaign for the U.K. to remain in the European Union ahead by three percentage points, boosting risk appetite among investors. Goldman Sachs Group Inc. warned last month that the yuan weakness may trigger capital outflows and increase bets on a one-off devaluation. Recent data showed the nation’s economic activity remained subdued in May.

“The PBOC is still trying to weaken its currency against major trade partners to regain trade competitiveness in order to counter the economic slowdown,” said Zhou Hao, Singapore-based economist at Commerzbank AG. “Our view of a ‘managed depreciation’ in the yuan remains valid.”

The yuan rose 0.1 percent to 6.5805 per dollar at 4:46 p.m. in Shanghai, gaining for a second day after sinking to a five-year low earlier last week. The offshore yuan climbed 0.1 percent. The pound rallied almost 2 percent against the greenback.

Forward Contracts

Chinese banks bought a net 8.6 billion yuan ($1.3 billion) of foreign-exchange forward contracts from clients in May, the first time since December 2014, data released from the State Administration of Foreign Exchange show.

The central bank auctioned 170 billion yuan of reverse-repurchase agreements on Monday, the biggest daily offering in almost two months. That compares with 110 billion yuan of similar contracts due that will drain liquidity from the banking system, data compiled by Bloomberg show.

The 14-day repo rate, a gauge of interbank funding availability, rose six basis points to 2.75 percent, the highest level in more than a month, according to National Interbank Funding Center prices. The money rate climbed 13 basis points in the last two days, the biggest two-day increase since April, as lenders tend to hoard cash for regulatory checks ahead of the quarter-end.

— With assistance by Helen Sun

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