Recent Yuan Slide Cost Speculators $5.5 Billion

China is succeeding in making its currency less predictable. Investors are paying the price.

Clients of U.S. commercial banks have lost about $2 billion this year on $332 billion of options betting the yuan would appreciate, while Chinese companies lost $3.5 billion on $150 billion wagered on a benchmark forwards contract, according to data compiled by Morgan Stanley and the Depository Trust & Clearing Corp. in Washington. These contracts, when including bearish bets, account for more than a third of global trading in the Chinese currency.

After almost a decade of gains, speculators had come to regard the yuan as a one-way trade, leading to a surge in capital inflows that stands to leave the country vulnerable to a sudden shift in investor sentiment. Policy makers responded by selling the yuan and widening its trading band, encouraging a record 2.6 percent quarterly decline that was the biggest among Asian currencies.

Bloomberg

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