Sept. 18 (Bloomberg) -- The yuan fell after some Asian currencies, such as South Korea's won, that the central bank uses to manage its exchange rate weakened against the dollar.
The People's Bank of China set a weaker reference rate for daily trading for a second day since the central bank increased interest rates on Sept. 14 for the fifth time since March. The authority may want to temper yuan appreciation by encouraging two-way fluctuations, said Wu Bingsong, a treasury dealer at Maybank Shanghai.
``The yuan's decline was influenced by the basket of currencies,'' Wu said. ``Hot money speculating on further yuan gains may rise with a narrowing interest rate gap with the U.S., so the central bank may want to curb the inflows.''
The yuan weakened 0.07 percent to 7.5276 against the dollar as of 9:55 a.m. in Shanghai, cutting gains since the end of the fixed exchange rate in July 2005 to 10 percent.
China's central bank has been managing the yuan against a basket of currencies since the end of a dollar link in July 2005. All but one of the 10 most-active currencies in Asia fell today.
The central bank last week raised the benchmark one-year deposit rate to 3.87 percent from 3.6 percent. A U.S. dollar one- year deposit now earns 5.08 percent.
Investors trimmed bets the Federal Reserve will cut its overnight lending rate between banks by 0.5 percentage point to 4.75 percent. Interest-rate futures show a 50 percent chance of a half-percentage-point cut, compared with 76 percent a week ago.
The Fed is scheduled to announce its rate decision today.
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