China's Yuan Jumps as PBOC Fixing Tests Trading Band Before G-20 - Bloomberg Businessweek

The yuan jumped the most in eight weeks as the central bank strengthened its reference rate to the limit, helping fend off criticism of China’s currency policy in the run-up to next week’s Group of 20 meeting.

The People’s Bank of China raised the daily fixing by 0.16 percent, the most since May 2, to 6.3089 per dollar today. That was 0.97 percent stronger than yesterday’s closing level in Shanghai and the currency is allowed to trade no more than 1 percent on either side of the fixing. Global leaders, including Chinese President Hu Jintao, will meet in Mexico June 18-19 for the G-20 meeting. China widened the yuan’s daily trading band to 1 percent from 0.5 percent on April 16.

“The fixing is China’s pre-emptive move to ease any pressure on appreciation at the G-20 meetings,” said Stella Lee, president of Success Futures & Foreign Exchange Ltd. in Hong Kong. “The wider yuan trading band has given more room for China to do so before major summits with trading partners. Investors are also betting global central banks will work together to bolster growth.’

The yuan rose 0.11 percent today, the most since April 17, to 6.3635 per dollar as of 9:50 a.m. in Shanghai, according to the China Foreign Exchange Trade System. It’s heading for the first weekly advance in six weeks. Its one-month volatility, a measure of exchange-rate swings used to price options, decreased four basis points to 2.17 percent.

The U.S. contends that China is keeping the yuan artificially weak to boost exports and calls for appreciation are heating up as President Barack Obama prepares for a November election. Germany will call attention to a number of issues including China’s exchange rate at the G-20 talks, two German government officials said in Berlin on June 12.

Currencies advanced across most of Asia’s emerging-market economies today amid speculation policy makers worldwide will unveil fresh stimulus measures as Europe’s debt crisis weighs on global economic growth. South Korea’s won rose 0.2 percent and Malaysia’s ringgit strengthened 0.3 percent.

In Hong Kong’s offshore market, the yuan climbed 0.09 percent to 6.3645 per dollar, extending this week’s gain to 0.12 percent. Twelve-month non-deliverable forwards advanced 0.17 percent to 6.4085, a 0.7 percent discount to the onshore spot rate.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net