Yuan lower

The yuan closed down slightly versus the dollar on Thursday after the central bank set a lower mid-point amid continuing international pressure on China to strengthen its currency. Spot yuan ended down at 6.3595 compared with Wednesday's close of 6.3533. It has risen 3.62 percent so far this year and 7.34 percent since it was depegged from the dollar in June 2010.
Before trading began, the central bank set the mid-point at 6.3477, marking the third day that the base rate has stayed above the critical level of 6.35 per dollar, though slightly weaker than Wednesday's 6.3456. "The current mid-point pushed up by the growing pressure from the United States is a level that the Chinese authorities find acceptable." said a trader from a commercial bank in Shanghai. "Further rises could overburden the Chinese economy."
China is maintaining a strong currency to help it wrestle with inflation at home, but is treading carefully on the yuan as slowing growth in the world's second-largest economy argues for not pushing its value much higher. US lawmakers have repeatedly cast aggressive comments over what they called the "misaligned" yuan, urging the Obama administration to take the lead on tackling China's exchange rate policies.
China also wants to pave the way for the upcoming Group of 20 summit in France next month. Yuan appreciation has long been a heated topic for this meeting. Traders said more volatility can be expected in yuan trading as too many uncertainties exist following the passing of a punitive currency bill by the United States Senate.
The market believes the authorities can bear yuan appreciation up to 4 percent this year, which means the yuan would move between 6.34 to 6.39 per dollar by year-end. Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3860 in late trade compared with 6.3915 at the close on Wednesday. They implied yuan depreciation of 0.60 percent in 12 months from the mid-point on Thursday, compared with depreciation of 0.69 percent on Wednesday.