SHANGHAI: The yuan declined against the dollar on Thursday despite stronger guidance from the central bank, as market observers see signs that a long-running yuan rally is starting to run out of steam.
The People's Bank of China set the daily midpoint at 6.1737 per dollar prior to the market open on Thursday morning, up 0.03 percent from Wednesday's fix.
But the spot yuan sank 0.07 percent from Wednesday's close to change hands at 6.1321 per dollar at midday, which traders attributed to a resurgence in appetite for dollars among Chinese corporates.
In recent weeks the dollar index, which tracks the dollar's value against a basket of currencies, has been steadily backing away from a high of 84.498 struck on May 23, its strongest since 2010.
The spot yuan continued a trend established last week of backing away from the most bullish allowable rate.
The traded exchange rate is allowed to rise or fall by 1 percent against the midpoint on any given day, and for most of April and May the rate bolted to the most aggressive available position, consistently trading in a range above 0.9 percent from the fix.
Traders said this indicated that the only thing holding the yuan back from setting more record highs was the PBOC midpoint.
But recent trading days have seen the spot premium to the fix narrow steadily. The exchange rate was 0.67 percent away from the fix at midday on Thursday, the closest it has been since late February.
Tim Condon, head of research for Asia at ING Financial Markets, highlighted the trend in a recent note emailed to clients.
"We see the narrowing as evidence that confidence-sensitive capital is flowing out, not in," he wrote.
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