Yuan forwards fell by the most in 15 months on speculation China will delay appreciation of its currency mostly because of Europe’s debt crisis, even since the U.S. pushes for an end to some 22-month peg.
U.S. Treasury Secretary Timothy F. Geithner, attending the annual U.S.-China Strategic & Economic Dialogue in Beijing, said he’s “as confident as I’ve ever been” that China has a growing incentive to let the Yuan gain against the dollar. The Yuan’s spot rate also declined since the greenback rallied against the euro and Asian currencies.
“The SED talks haven’t sent any clear signal about the next move in the currency policy,” said Liu Dongliang, a Shenzhen-based analyst at China Merchants Bank Co., the country’s fifth-largest lender by market value. “There is no chance of an appreciation in the currency within the next two months if the European debt crisis doesn’t settle.”
Twelve-month non-deliverable forwards dropped 0.7 percent to 6.7901 per dollar as of 5:46 p.m. in Hong Kong, the biggest loss since Feb. 17, 2009, reflecting bets the currency will strengthen 0.6 percent from the spot rate of 6.8310, according to data compiled by Bloomberg.
“The slump is driven by worries about the European debt crisis,” said Huang Yi, a foreign-exchange trader at Guangdong Development Bank Co. in Guangzhou. “It may rebound tomorrow since the central bank is likely to keep the reference rate stable.”
The central bank today set the reference rate for the currency at 6.8279 per dollar, the weakest level since Jan. 8.
Bonds Drop
Revaluing the Yuan is “absolutely” in China’s long-term economic interest, Geithner said in an interview with Bloomberg Television in Beijing today. He welcomed President Hu Jintao’s pledge yesterday of steady and gradual changes to the nation’s exchange-rate system.
U.S. and Chinese officials held “very rich and profound” discussions over the past two days in Beijing, according to Dai Bingguo, who co-leads the Chinese delegation.
Government bonds declined on speculation China’s inflation will quicken as policy makers delay monetary tightening.
Consumer prices rose 2.8 percent from a year earlier in April, the fastest pace in 18 months, and the National Development and Reform Commission a week ago warned inflation may quicken to 3 percent in both May and June. Chinese Premier Wen Jiabao said May 18 the global economic crisis is more complicated and serious than expected, and the foundations of the recovery remain fragile, China Central Television reported.
“People’s concern about policy tightening eased recently,” said Yang Yongguang, a fixed-income analyst with Guohai Securities Co. in Shenzhen. “Debt investors are worried about a pickup in inflation.”
The yield on the 1.77 percent note due in December 2013 climbed two basis points to 2.52 percent, and the price of the security dropped 0.07 per 100 Yuan face amount to 97.47, according to the National Interbank Funding Center.