The Chinese renminbi posted its largest decline in seven weeks on speculation that Beijing is preparing to counter appreciation on concerns about the domestic economy, Bloomberg reported. Beijing is concerned about macroeconomic data that show growth in industrial output slowing in July. The decision is also likely due in part to the recent appreciation of the dollar’s relative strength. The Dollar Index, which tracks the dollar’s relative strength against six US trading partners, surged 2% yesterday after the Federal Reserve said the US recovery is likely to be more modest than previously expected. The People’s Bank of China (PBoC) subsequently lowered its daily reference rate by 0.36% to 6.8015 against the US dollar. The drop in the reference rate is the sharpest decrease since the dollar peg was abandoned in 2005. The renminbi slid by 22% to 6.7898 per dollar. Twelve-month non-deliverable forwards also declined to 6.6929, indicating that currency traders believe the currency will appreciate 1.4% from the spot rate in a year.
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