China may devalue yuan on weak euro

The chances are growing of a formal devaluation of China's yuan against a weakening euro, analysts from Germany's Deutsche Bank, the currency world's second-biggest player, said in a note.

The note is broadly in line with market talk about the issue in London, the world's biggest foreign exchange centre, over the past month.

The world's biggest currency trader, Citigroup, said last week that the People's Bank of China might shift its controlled yuan trading bands lower and could move the emphasis away from dollar rates.

"We do not expect any change in China's currency policy near term, but if (as we expect) the USD appreciates markedly further, debate may resurface over whether China's FX link to the USD is sustainable over time," Citigroup said last week.

"Possible near-term weakness in (the yuan) may be intensified if the People's Bank of China shifts its peg with the dollar to a basket of currencies."

The talk comes as China is pushing to have the yuan formally named as a reserve currency through inclusion in the IMF's Special Drawing Rights (SDR) reserve basket, which is due for its five-yearly review later this year.