SHANGHAI: China's yuan edged slightly weaker on Thursday after the dollar surged in global markets in response to the US Federal Reserve's decision to reduce its monetary stimulus.
China's central bank set its daily midpoint at 6.1183 per dollar on Thursday, its weakest fixing since Dec. 6, after the dollar index gained strongly overnight on the Fed's action. Spot yuan lost 0.02 percent to 6.0729 near midday.
The weaker fix broke a string of three straight gains in the midpoint. The People's Bank of China (PBOC) often fixes the yuan weaker in response to dollar gains in an effort to hold the Chinese currency roughly stable against non-dollar currencies.
But yuan depreciation may not last as traders said they continue to observe heavy yuan buying demand in the market.
"The influence of the Fed's decision may amount to a one-day tour," said a trader at a mid-sized bank in Shanghai.
The Chinese currency is facing upward pressure as the country's trade surplus remains large and rising Chinese interest rates attract hot money inflows.
Tight conditions in China's money market could also support the Chinese currency. Interest rate swaps set a record high on Thursday.
Traders say the PBOC is likely to hold the spot rate roughly steady for the remainder of this year, before allowing the currency to resume mild appreciation early next year.
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