China's yuan weakened against the US dollar on Wednesday, after the central bank set a noticeable weaker midpoint to reflect global dollar index strength. The People's Bank of China set the midpoint rate at 6.8808 per dollar prior to market open, weaker than the previous fix 6.8575.
The spot market opened at 6.8865 per dollar and was changing hands at 6.8897 at midday, 77 pips away from the previous late session close and 0.13 percent away from the midpoint. The spot rate is currently allowed to trade with a range 2 percent above or below the official fixing on any given day.
"It seems that the central bank wants to keep the yuan around 6.89 area for now as big state-owned banks are offering dollars around this level," said a trader at a Chinese bank in Shanghai. "The future movement of the yuan still depends on the dollar's performance," the trader said. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.27, weaker than the previous day's 95.52.
The euro slipped from three-week highs against the US dollar on Tuesday, following a strong rally on Monday, as investors awaited Thursday's highly anticipated European Central Bank policy meeting. A focus for markets is November foreign exchange reserves data, due later on Wednesday. Analysts polled by Reuters expect that the level fell $30 billion last month to $3.091 trillion, which would be the lowest since early 2011.
The offshore yuan was trading -0.17 percent away from the onshore spot at 6.9013 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 7.1145, -3.28 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
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