Switzerland's surprise move weakens yuan

US currency demand increases after euro cap abandoned

China's yuan fell the most in four weeks as the Swiss National Bank's surprise move to abandon a cap to the euro boosted demand for the greenback.

The Swiss franc jumped as much as 41 percent on Thursday in London after the central bank scrapped a three-year-old policy of preventing the currency from strengthening beyond the 1.20 level against the European single currency.

China's exports rose 9.7 percent in December from a year earlier, beating the 6 percent growth predicted in a Bloomberg survey, according to official data released on Tuesday. Imports fell 2.4 percent, leaving a trade surplus of $49.61 billion.

The yuan weakened 0.3 percent, the most since Dec 18, to close at 6.2066 a dollar in Shanghai, China Foreign Exchange Trade System prices show. It gained 0.03 percent this week.

"Market sentiment has definitely worsened in the short term and some investors are probably unwinding their positions to free up liquidity to get dollars," said Ho Man Chun, Hong Kong-based strategist at Bank of Communications Co's branch in the city. "This unwinding has nothing to do with China's fundamentals."

The People's Bank of China raised the yuan's reference rate by 0.01 percent on Friday to 6.1188 a dollar, capping a 0.18 percent advance for the week. The onshore spot price traded 1.4 percent weaker than the fixing, within the 2 percent limit of its permitted trading range.

In offshore trading in Hong Kong, the yuan slipped 0.39 percent on Friday and 0.28 percent for the week to 6.2231, data compiled by Bloomberg show. Twelve-month non-deliverable forwards fell 0.47 percent, the most since Dec 18, to 6.3265, 1.9 percent lower than the spot rate in Shanghai.

The pressure for the yuan to depreciate will increase as the SNB's removal of the franc cap implies an increasing possibility the European Central Bank will conduct quantitative easing, said Everbright Securities Beijing-based economist Xu Gao. Speculation over a weaker euro will lead to a stronger dollar, Xu said.

Casualties mounted from the Swiss currency shock as the largest US retail foreign-exchange brokerage said client losses threatened its compliance with capital rules. FXCM Inc, which handled a record $1.4 trillion of trades by individuals last quarter, said clients owe $225 million on their accounts after SNB's decision roiled global markets.

China's foreign-exchange reserves fell to $3.84 trillion at the end of December, from $3.88 trillion in September, according to official figures released Thursday.