SHANGHAI: China's yuan closed virtually flat on Tuesday after touching a record-high touched on Monday, with traders expecting only marginal appreciation in the weeks ahead.
Spot yuan closed at 6.2110 per dollar, barely weaker than Monday's close of 6.2107, its strongest close ever.
The slight weakening came after the central bank set its daily midpoint 0.04 percent weaker at 6.2715.
By guiding the yuan to record highs in recent weeks, the People's Bank of China (PBOC) has signalled that it will permit the currency to appreciate this year, despite fears of a currency war touched off by the sharp drop in the Japanese yen since late last year.
Recent comments by the central bank showing renewed concern about inflation this year should also increase official appetite for yuan appreciation.
But the PBOC has also demonstrated that the yuan's appreciation would continue to be slower than China's trading partners want. Without PBOC intervention to buy excess dollars, market forces would have resulted in a faster appreciation of the yuan.
The yuan has now gained 0.29 percent so far in 2013, putting it on pace for the 1 to 2 percent full-year appreciation that most analysts predicted at the start of the year.
Even at its record intraday high of 6.2095 on Monday, the yuan was only 0.04 percent stronger than Friday's close.
"People were feeling optimistic about Europe yesterday, so the euro gained, and the PBOC was responding to that," a senior forex trader at an Asian bank in Shanghai said of Monday's record high.
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