Yuan forwards fall as Europe's woes worsen

08:51, April 29, 2010      

Email | Print | Subscribe | Comments | Forum 

Yuan forwards fell on concern the eurozone's deepening debt crisis may derail the global economic recovery and prompt China to delay appreciation of its currency.

Standard & Poor's Ratings Services on Tuesday cut Greece's credit rating by three notches to junk, the first time a euro member has lost its investment grade since the currency's debut.

The firm also slashed Portugal's ratings by two steps to 'A-'. Global stock markets slumped, and the Chicago Board Options Exchange Volatility Index, popularly known as the fear gauge, jumped the most since October 2008.

"The magnitude of declines in US and European stocks has substantially reduced investors' appetite for risk," said Dariusz Kowalczyk, chief investment strategist for SJS Markets Ltd in Hong Kong. "Any emerging-market asset will fall under the current circumstances, and this specially applies to Chinese forwards as the likelihood of a yuan appreciation declines."

China's central bank set the yuan's central parity rate against the dollar at 6.8264 on Wednesday.

Twelve-month non-deliverable forwards fell 0.2 percent to 6.627 per dollar as of 8:47 am in Beijing, according to data compiled by Bloomberg. It was the lowest level for the contracts since April 20 and reflects bets the currency will strengthen about 3 percent.

Since the global financial crisis worsened in the second half of 2008 and hit Chinese economy hard, the yuan's value against the dollar has remained largely unchanged. But the Chinese economy has recovered steadily from the crisis - it expanded by 8.7 percent year-on-year in 2009, and, as its jobless rate remained high in recent months, the US has initiated a campaign to press China to appreciate the yuan, claiming that the "undervalued" yuan has caused US trade deficit with China and job losses.

China said that the US problem, namely, a low savings rate and high consumption rate as well as outsourcing of manufacturing capabilities - should be blamed for its trade deficit and job losses.

Its export policy, which restricts exports of high-tech products to China, is also a major factor behind its deficit, the Chinese side said.

"Yuan appreciation won't solve the problem of the US trade deficit," said Zhou Shijian, senior economist with the China-US Relations Research Center of Tsinghua University. "Appreciation of the yuan would lead to the shrinking of US debt to China."

China has spent a large portion of its $2.4 trillion foreign exchange reserves to buy US treasuries.

The dispute between two sides has seemed to be easing after the US delayed the release of its report - previously due for April 15 - on whether to name China a "currency manipulator".

Source: China Daily/Bloomberg


  • Do you have anything to say?


Special Coverage
  • Premier Wen Jiabao visits Hungary, Britain, Germany
  • From drought to floods
Major headlines
Editor's Pick
  • On Sept. 26, a resident passes by a flower terrace decorated for the coming National Day. (Xinhua/Hang Xingwei)
  • The photo, taken on Sept. 26, shows the SWAT team ready for the joint exercise. (Xinhua/Wangkai)
  • Two metro trains in Shanghai collided Tuesday afternoon, and an identified number of passengers were injured in the accident, the Shanghai-based eastday.com reported. Equipment failures were believed to have caused the crash on the Line 10 subway, Xinhua quoted local subway operator as saying.
  • An employee at a gold store in Yiwu, located in east China's Zhejiang province, shows gold jewelry on Monday.(Xinhua/Zhang Jiancheng)
  • Tourists ride camels near China's largest desert lake Hongjiannao in Yulin, north China's Shaanx Province, Sept. 24, 2011. Hongjiannao is shrinking as a result of climate change and human activities, and may vanish in a few decades. Its lake area, which measured more than 6,700 hectares in 1996, has shrunk to 4,180 hectares. Its water level is declining by 20-30 centimeters annually and its water PH value has risen to 9.0-9.42 from 7.4-7.8. (Xinhua/Liu Yu)
  • Actors perform royal dance at the Gyeongbok Palace in Seoul, Sept. 27, 2011. A ceremony commemorating the 38th South Korea Sightseeing Day was held in Gyeongbok Palace on Tuesday. (Xinhua/He Lulu)
Hot Forum Discussion