SHANGHAI: The yuan was slightly up versus the dollar by midday on Wednesday, with the market remaining cautious amid growing pressure from the United States for China to do more to let its currency strengthen.
The People's Bank of China (PBOC) has continued to set the yuan's daily mid-point at or around record high levels over the past few days, in what traders interpreted as a gesture ahead of a Group of 20 summit in France next month that China is willing to let the currency appreciate.
The PBOC set the mid-point at 6.3456 versus the dollar on Wednesday, just shy of a record high fixing on Tuesday.
But whether Beijing will actually continue to engineer appreciation in the longer run is less certain.
"The relatively high mid-point is another good political gesture just ahead of the G20 summit," said a trader at a European bank in Shanghai. "But at the same time, investors are worried over the outlook for China's economy."
Beijing has come under renewed pressure especially from US politicians over the value of its currency, prompting onshore forex dealers to look for signs of how it will respond.
Republican lawmakers aired US grievances over subsidies, piracy and other Chinese trade practices on Tuesday, urging President Barack Obama to take the lead on correcting what they call China's "misaligned" exchange rate.
At the same time, China has its own reasons for treading cautiously on the currency, as signs that the world's second-biggest economy could be facing headwinds could argue for not pushing the yuan up much further in value.
China's industrial firms face increased difficulties due to weakening global demand, while inflation could maintain a "relatively" high level, the Ministry of Industry and Information Technology said on Wednesday.
With traders concerned about potential economic trouble ahead, spot yuan did not follow the strong mid-point and continued to trade weaker than the mid-point on Wednesday in a range of 6.3551 to 6.3687 versus the dollar.
The yuan has risen 3.64 percent so far this year and 7.36 percent since it was depegged from the dollar in June 2010.
Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3910 in midday trade compared with 6.3880 at the close on Tuesday.
They implied yuan depreciation of 0.71 percent in 12 months from the mid-point on Wednesday, compared with depreciation of 0.66 percent on Tuesday.
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