Yuan slips after mid-point posts biggest fall in 7 weeks

SHANGHAI: China's yuan fell slightly on Thursday after the People's Bank of China set the mid-point 114 pips weaker than the previous day, the biggest fall in seven weeks, signalling its intention to keep a lid on yuan appreciation.

Dealers said the central bank was likely to restrain rises in the Chinese currency due to uncertainty in the domestic economy, especially a slowdown in China's exports.

"The fall in the mid-point does not surprise us as the central bank has sent a signal that it will keep the yuan generally stable," said a dealer at a Chinese bank in Shanghai.

He and several dealers said the yuan could move between 6.30 and 6.32 per dollar in the coming days due to the uncertainty in global markets.

The yuan was also dragged down by a rebound in the dollar index as markets refocused on concerns about the euro zone debt crisis ahead of a French debt auction later in the session.

Spot yuan was at 6.3010 per dollar after hitting a record intraday high of 6.2919 on Wednesday. It has risen 8.3 percent since it was depegged in June 2010.

Before trading began, the PBOC fixed the dollar/yuan mid-point at 6.3115, down 0.18 percent from Wednesday's record high of 6.3001. The fall was the largest since Nov. 15 when it dropped 149 points. The central bank uses the fixing to express the government's intention for the yuan's movements in a day.

But traders still foresee an around 3-percent rise in the yuan against the dollar as China faces US pressure to do more to rebalance bilateral and world trade, while it continues to record trade surpluses.

Offshore, benchmark one-year non-deliverable forwards (NDFs) were little changed at 6.3300 on Thursday against 6.3350 at the close on Wednesday, but still implying that the yuan would depreciate.

They now imply a 0.29 percent depreciation over the next year compared with a 0.37 percent fall implied on Thursday.

One-year NDFs began to mainly imply yuan depreciation in late September, reversing a general trend of forecasting yuan appreciation in place since the yuan's revaluation in 2005.