Yuan Falls Most in Six Weeks

The yuan fell by the most in more than six weeks against the dollar on speculation China will slow currency gains to aid exporters as the economy slows.

The currency, Asia's best performer this year, dropped after the central bank set a weaker daily reference rate for a third day. China's economic growth cooled in the second quarter, increasing pressure on authorities to switch from fighting inflation to bolster the nation's economy.

The currency declined 0.19 percent to 6.83 a dollar in Shanghai as of the 5:30 p.m. close, from 6.8169 at the end of last week, according to the China Foreign Exchange Trade System. That's the biggest drop since June 4.

Today is the third anniversary of the end of the yuan's 8.3 link to the dollar, during which time the currency has gained 21 percent.

China wants to ensure ``steady and relatively fast'' growth this year and to control ``excessive'' gains in consumer prices, Premier Wen Jiabao said, according to China National Radio's Web site late yesterday. Gross domestic product expanded 10.1 percent in the second quarter from a year earlier, the slowest pace since 2005, a government report showed last week.

China is allowing gains against currencies of its major trading partners to stem inflation that slowed to 7.1 percent in June, the least in five months. The Westpac Nominal Effective Exchange Rate, a trade-weighted index for the yuan that includes the euro and the yen, rose 9.4 percent this year.

China should continue measures aimed at controlling price increases to prevent soaring world oil and grain prices from fueling inflation, the official China News Service reported, citing Fan Gang, a central bank adviser.

Yuan Falls Most in Six Weeks

TradingEconomics.com, Bloomberg
7/21/2008 8:57:04 PM