SHANGHAI: China's yuan on Friday equaled a record high set two days earlier, but appears headed for only a tiny gain on the week as the central bank appears intent on holding the yuan steady.
Spot yuan opened at a record-high 6.2195 per dollar, but the currency was trading at around 6.2104 near midday, with traders seeing signs that the central bank was intervening as necessary to hold the exchange rate above the psychologically significant 6.21 resistance level.
At current levels, the yuan is up 0.03 percent on the week.
Before trading began, the People's Bank of China (PBOC) set its daily midpoint at 6.2689, 0.08 percent stronger than Thursday and the strongest fix since May 2012.
Back then the spot rate was around 6.30 and caught in a weakening trend. Unlike now, the spot yuan was also consistently trading at the bottom end of the PBOC's daily allowable trading band, so the strong fixings served to prevent the spot rate from weakening even further.
By contrast, market pressure has kept the yuan near the top of its trading band since September, and the PBOC is using relatively weak midpoints to prevent excessive appreciation.
The strong midpoint on Friday came in response to a fall in the dollar index overnight. The index tracks the dollar's value against a basket of global currencies weighted towards the euro.
The euro hovered near four-month lows against the dollar on Friday, beset by political deadlock in Italy and worries huge losses Cypriot depositors have been forced to stomach as part of a bailout could unnerve investors in other euro zone debt.
Traders expect the yuan to fluctuate in a narrow range around 6.21 in the weeks ahead, with the central bank maintaining a wait-and-see stance amid lingering fears of an Asian currency war and uncertainty whether strong export growth seen early this year will continue.
Both of those factors could cause the PBOC to guide the yuan weaker. But the PBOC has also expressed concern about a possible resurgence of inflation this year. If inflation ticks up, that could cause the PBOC to unleash further gains in the yuan.
Most analysts are maintaining their forecasts from the start of the year that the yuan will rise by 1 to 2 percent overall in 2013, placing it around 6.14 at year-end.
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