SHANGHAI, Apr 3: China’s yuan slipped versus the dollar on Wednesday after the central bank set a slightly weaker midpoint, which traders said might signal it wants the Chinese currency to stabilize following Tuesday’s record high.
Spot yuan fell to 6.2013 per dollar near midday, down 0.04 percent from 6.1986 at Tuesday’s close, its highest level since the China Foreign Exchange Trade System was established in 1994.
Before trading began, the People’s Bank of China (PBOC) set its daily midpoint 6.2609, softer than Tuesday’s unexpected all-time high midpoint of 6.2586.
The PBOC surprised the market on Tuesday by setting its midpoint 0.14 percent stronger, a move that traders believed showed the government’s tolerance of measured yuan appreciation. That belief helped push the spot yuan to its record high on Tuesday.
‘The PBOC’s midpoint today appears aimed at dampening too much enthusiasm towards potential yuan appreciation,’ said a dealer at a foreign bank in Shanghai.
‘As such, the yuan should move narrowly around 6.2/dollar for now before the PBOC signals the next round of measured appreciation,’ he said.
According to traders, market conditions indicate the trend of appreciation for the yuan in the medium term remains intact, although still in an officially controlled manner.
Among other factors, hot money has been flowing into China this year, driven by large-scale quantitative easing by the U.S. Federal Reserve and other Western central banks since the second half of 2012. China’s healthy trade surplus early this year has also added to dollar supply, traders said.
Market pressure has kept the yuan near the top of its trading band since September, and the PBOC is using a measured rise in its midpoints to curb excessive appreciation. (AGENCIES)
Follow our WhatsApp channel