By Patrick Graham and Sujata Rao
LONDON Feb 21 China's yuan currency weakened to
its lowest level since early October in offshore trade on Friday
, extending a central bank-sponsored slide that has
rattled foreign investors and left questions about Beijing's
One of the safest bets for global investors in recent years
has been a steady gain for the yuan, or renminbi, long seen as
artificially undervalued by state controls and traded by foreign
investors in a complex system of offshore and forward rates.
Signs of weakening in the world's second biggest economy
have underpinned a change in recent weeks and the People's Bank
of China has set lower guidance rates for a market still
complicated by the lack of full convertibility of the currency.
The move on Friday was the biggest one day fall since
October 2011, Reuters data showed. In European trade, the
currency fell past 6.10 yuan per dollar, bringing its losses
since Monday to more than 1 percent.
"This is one of the most crowded positions in emerging
markets, being long yuan versus the dollar," said Manik Narain,
an emerging market strategist at UBS in London.
"In the past few sessions the PBOC has been guiding the
midpoint of the daily U.S. fix higher so there has been a bit of
a washout of positioning. It caught a lot of people off guard."
Rates on offshore markets, an important tool for companies
doing business directly with China and where the yuan trades
only in electronic terms, have always differed from the hard
currency value of the yuan in China.
But they still follow it closely and the shift in central
bank guidance rates, as well as reports that the PBOC has asked
major state-owned banks to buy dollars, have pushed the offshore
Most analysts, however, assume Beijing will not seek any
deeper weakening of the currency given long standing criticism
from the United States of the yuan's failure to appreciate and
the risk of a resulting boost in domestic inflation.
"We don't think this is the big one," analysts from French
bank BNP Paribas said in a note on Friday.
"An outright devaluation of the (renminbi), or a
depreciation trend is not in PBOC's interest. It would spring a
new shock on the economy by raising the short-term cost of
capital in the inter-bank market, and deal a blow to its agenda
of internationalising the (renminbi)."