SHANGHAI: China's yuan lost some strength against the dollar on Friday after the FX regulator warned of possible action if the currency market is hit by greater fluctuations, but was still on course for its biggest weekly gain since May despite the setback.
Wang Chunying, spokesperson for the State Administration of Foreign Exchange (SAFE), said "if the foreign exchange market faces relatively big fluctuations, (regulators) will roll out counter-cyclical adjustments at an appropriate time."
She said China's authorities were watching closely for bigger fluctuations due to policy tightening by major world economies.
The SAFE comments prompted some speculators to withdraw bets on the yuan testing highs, and traders said Chinese authorities could be signalling some discomfort over the yuan's strength.
Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.4032 per dollar, 142 pips or 0.22% weaker than the previous fix of 6.3890.
In the spot market, onshore yuan opened at 6.3921 per dollar and was changing hands at 6.3985 at midday, 65 pips weaker than the previous late session close.
The yuan touched a high of 6.3794 per dollar on Wednesday, the strongest level since June 2.
If the yuan finishes the late night session at the midday level, it would still have gained about 0.6% to the dollar for the week, for the best weekly performance since late May.
China's yuan hovers at 4-month high as PBOC lifts midpoint above key threshold
Back then, a sharp rally in the yuan prompted the central bank to raise the FX reserve requirement ratio for financial institutions to 7% from 5% to stem gains.
"Clearly, the pace of RMB appreciation remains a concern for the authorities," Terence Wu, FX strategist at OCBC Bank said in a note.
"Nevertheless, so long as the services deficit on the BOP does not return, we may not see the RMB come under sustained pressure."
Separately, highly-indebted China Evergrande Group's found funds to pay interest on a US dollar bond, according to a source, lifting sentiment and briefly supporting the yuan in initial trade, traders said.
The offshore yuan rose to a high of 6.3870 before trading at 6.3954 per dollar by midday.
The broad dollar index fell to 93.721 from the previous close of 93.741.
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