Investors warned of more fluctuations in yuan

The mainland's foreign exchange chief has warned investors to expect more fluctuations in the value of the yuan as the currency moves towards a more market-based trading system and said current price moves were not large.

Yi Gang, head of the State Administration of Foreign Exchange, was responding to reporters' questions as he entered the Great Hall of the People for the opening of the annual meeting of the Chinese People's Political Consultative Conference.

He declined to respond to rising market speculation that Beijing was readying to widen the band in which the yuan traded, currently set at no more than 1 per cent either side of the reference rate set by the central bank every day, saying instead that greater two-way movement should be expected as a more market-oriented trading regime took shape.

Currencies of emerging markets were even more volatile, said Yi, who is also vice-governor of the People's Bank of China, adding that "a fluctuation of about 1 per cent is not large".

The market has been caught off guard by a sudden weakening of the yuan, engineered by regulators who have set a succession of softer daily midpoints around which the yuan can fluctuate.

The yuan sank as much as 0.86 per cent to 6.1808 against the US dollar on Friday in its sharpest one-day fall since at least 2007 as traders began to speculate that Beijing was determined to push the currency lower to help the economy weather headwinds from a sluggish global economy that are hurting demand for Chinese exports.