SHANGHAI: The yuan on Wednesday broke below its established trading zone this year, succumbing to pressure to depreciate as Europe's deepening debt crisis pushed the dollar index to its highest level since September 2010.
The Chinese currency, which has traded between 6.29 and 6.33 versus the dollar since January, weakened past 6.33 and traders said it would have fallen further if central bank had not fixed a midpoint stronger than the spot market.
"Judging from the dollar's performance, it is almost certain that the yuan will continue its fall in the near term, but the pace is likely to be controlled by the central bank's fixing," said a dealer at a European bank in Shanghai.
Spot yuan was trading at 6.3309 per dollar at midday, compared with 6.3231 at Tuesday's close and the daily midpoint of 6.3208.
The midpoint was 131 pips weaker than Tuesday's fixing.
The yuan has fallen 0.33 percent against the dollar so far this month.
In addition to deepening euro zone debt woes, it has faced additional pressure since China posted a much worse-than-expected slowdown in its economic growth.
Growth in China's gross domestic product slowed to a near three-year low of 8.1 percent in the first quarter. Many economists now believe the growth of the world's second-largest economy could fall below 8 percent in the second quarter.
The People's Bank of China has recently set a series of midpoints stronger than the yuan's trading level, as it seeks to keep the exchange rate relatively stable, although it has also signalled that it would tolerate a measured depreciation.
The midpoint is the central bank's base rate for the yuan to rise or fall by a maximum 1 percent against the dollar in a day.
Offshore one-year non-deliverable yuan forward contracts continued to trade at a premium to the spot price, changing hands at 6.3850 in the afternoon session for a discount of 1 percent to Wednesday's midpoint.
Offshore spot yuan was trading around 6.3305 in late trade, largely in line with the trend in the onshore spot market.
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