China’s currency according to Bloomberg News is becoming less predictable and investors are paying the price. According to data collected by Morgan Stanley and the Depository Trust & Clearing Corp. in Washington, clients of U.S. commercial banks have lost around $2 billion this year on $332 billion of options betting the yuan would appreciate and Chinese companies lost $3.5 billion on $150 billion wagered on a benchmark forwards contract. The losses in the options market were on outstanding yuan call options reported by U.S. banks, which clients took out to hedge or speculate on the Chinese currency.
A former senior coordinator for China affairs at the U.S. Treasury and now a Los Angeles-based analyst at TCW Group Inc., David Loevinger said that “The depreciation was engineered to burn the fingers of speculators.” Acceleration in the yuan’s declines might cause concern among China’s trading partners.
The world’s largest currency trader, Deutsche Bank, reported that according to Bloomberg News, the yuan’s slide risks becoming a “slippery slope.”
Perry Kojodjojo, a Hong Kong-based strategist at the German bank, predicted the yuan will weaken beyond 6.3 per dollar, without specifying when.
A Hong Kong-based senior strategist at HSBC Holdings Plc, Ju Wang, said by phone that according to Bloomberg News, “I don’t think the currency will depreciate big time.”
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