SHANGHAI: The yuan closed down against the dollar on Monday as the dollar index rose in early European trade, but the Chinese central bank set the mid-point little changed, underpinning forcasts that China would keep the yuan relatively stable for now.
Spot yuan closed at 6.3600 per dollar, down from Friday's close of 6.3554. It has still risen 3.61 percent so far this year and 7.33 percent since it was depegged from the dollar in June 2010.
Before trading began, the central bank set the mid-point at 6.3522, compared with Friday's 6.3548.
"China has no intention of letting the currency rise fast for now, so we are just trading the yuan around the mid-point or let it track the dollar's moves," said a dealer at a Chinese bank in Shanghai.
Indeed, on Saturday, China's Premier Wen Jiabao said that China will make the yuan more flexible in either direction, which indicated that it will not let the currency only appreciate.
Dealers said another reason for the central bank halting the yuan's rise was worries over hot mone. The country's top foreign exchange regulator said on Monday that China would press on with its heavy crackdown against hot money inflows.
An appreciation in the yuan and weakness in the dollar had increased pressures of hot-money flowing into Chinese financial markets, dealers said.
Offshore one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3480 on Monday, up from 6.3300 at the close on Friday.
They now implied that the yuan would appreciate 0.07 percent in 12 months from Monday's PBOC mid-point compared with an implied appreciation of 0.35 percent last week.
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