Yuan Drops to Seven-Week Low

The yuan fell, touching a seven-week low, on speculation slowing inflation will prompt policy makers to aid exporters by limiting currency gains.

The Chinese currency has declined 0.6 percent since China's Politburo, the Communist Party's top decision-making body, said on July 25 that maintaining economic growth is as important as controlling inflation. A government report today showed consumer prices rose in July at the slowest pace in 10 months after the yuan climbed 6.6 percent against the dollar in the first half.

The yuan dropped 0.08 percent to 6.8632 a dollar as of 5:30 p.m. in Shanghai, from 6.8577 late yesterday, according to the China Foreign Exchange Trade System. It today reached 6.8760 per dollar, the weakest since June 23.

Yuan declines increase the amount of local currency exporters receive for their overseas sales and make Chinese products more competitive in the global market.

Consumer prices rose 6.3 percent from a year earlier last month, after increasing 7.1 percent in June, the statistics bureau said today in Beijing. That's less than the 6.5 percent gain forecast by economists in a Bloomberg News survey.

China has allowed the yuan to decline 0.1 percent since the end of June to help exporters weather a global economic slowdown and deter so-called hot money, speculative funds attracted by anticipated gains in the currency.

The central bank manages the yuan against a basket of currencies by setting a daily reference rate versus the dollar, around which the local currency is permitted to trade by up to 0.5 percent on either side. The rate, set at 6.8659 per dollar today, has been reduced on each of the past 10 days, the longest stretch of declines since a peg to the dollar ended in 2005.

Yuan Drops to Seven-Week Low

TradingEconomics.com, Bloomberg
8/12/2008 6:49:49 AM