SHANGHAI, May 3: The yuan edged lower against the dollar on Friday as the People’s Bank of China (PBOC) set a slightly weaker midpoint after it guiding the Chinese currency to a slew of record highs in recent weeks.
Spot yuan was trading at 6.1568 against the dollar at midday, slipping from 6.1560 at the close on Thursday. The PBOC fixed its midpoint at 6.2152 before trade began, weaker than Thursday’s all-time high midpoint of 6.2082.
Guided by a series of record high midpoints, the yuan changed hands at 6.1537 per dollar in intraday trading on Thursday, the currency’s highest level since China established the domestic foreign exchange market in 1994.
The central bank’s tolerance of a relatively sharp appreciation of the yuan since April 1 has puzzled some market observers, as China needs to support its exports with a stable currency amid weak global economic conditions.
The PBOC has not explained its reasons, although regulators have publicly said that conditions are now beneficial to ‘consider’ widening the trading band that controls the range the exchange rate may move away from the daily fix on a given day.
Some traders speculated that the rise in midpoint settings is intended to give market forces room to let the yuan settle at a stronger level in preparation for a widening of the band, currently set at a one percent divergence either way.
‘The yuan’s value has been almost exclusively guided by the midpoint in recent few weeks, though we are uncertain where the central bank is leading the exchange rate,’ said a trader at a European bank in Shanghai.
‘While the market at present sees a rough balance of dollar supply and demand, the potential for the yuan to rise sharply in the medium term should be limited, but signs are that the PBOC may continue to guide the currency higher for now.’Agencies
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