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China’s yuan inched up against the dollar on Friday morning but is set to post its biggest weekly loss in five weeks, as market participants look to a more gradual pace of decline in the currency in months ahead.
By midday, the yuan was changing hands at 6.5880 per dollar, gaining 0.1 per cent from Thursday’s close, buoyed by a 0.2 per cent weakening of the greenback in Asian morning trade. It is on track to end the week 0.4 per cent weaker, its biggest weekly loss since the week of May 13.
This week’s sharp fluctuation sent the yuan to its weakest level in more than five years on Wednesday, at 6.6047.
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At one point, the People’s Bank of China (PBOC) was suspected of selling dollars via state-owned banks to deter what it sees as excessive weakening of the Chinese currency, traders said.
“While there’s no doubt the PBOC is tolerating more yuan volatility so as to move towards more market-oriented mechanisms to price the yuan, it has maintained intervention in the yuan’s trading,” said a senior trader at a European bank in Shanghai.
“For instance, there were signs that state banks sold dollars to keep the yuan relatively stable on Wednesday morning when the yuan hit five-year lows in early trade.
“While the PBOC has made progress in reducing previously near-daily intervention, it apparently still has some internal targets to control the pace of yuan depreciation.”
Traders expect the yuan to hold above recent five-year lows in the near-term, in line with a global dollar softening and thanks to a more cautious US interest rate outlook.
However, it is expected to then gradually drift to new multi-year lows over the rest of this year, reflecting a considerable slowdown in the world’s second-largest economy, among other factors. On Friday, the central bank set the midpoint rate at 6.5795 per dollar prior to market open, slightly weaker than the previous fix 6.5739.
The weakening in the official guidance rate, however, was offset by the dollar’s same-direction movements in Asian trade, traders said.