SHANGHAI: The yuan eased against the dollar on Friday, set for a slight weekly fall as attention shifted to the possibility of a dollar rally in global markets amid the euro zone's economic and political troubles, traders said.
The dollar index, in which the euro has a nearly 60 percent weighting, touched its highest level since mid-March of 80.336 in Asian trade on Friday, while worries lingered that the euro zone's conditions could worsen.
Spot yuan opened at 6.3160 per dollar on Friday, 20 pips weaker than Thursday's close.
It weakened further to trade at 6.3181 by midday, little affected by China's consumer and producer prices in April that indicated inflationary risks and a potential slowdown in the world's second-largest economy were still present.
The consumer price index (CPI) in April rose 3.4 percent year-on-year, a touch above the 3.3 percent rise forecast in a Reuters poll but down from the 3.6 percent pace logged in March. PPI fell 0.7 percent on year, data showed.
The price figures came after disappointing trade numbers on Thursday.
In what traders believe to be a response to domestic and global weaknesses, the People's Bank of China (PBOC) recently set a slew of midpoints stronger than the yuan's trading level, signalling that it does not want the yuan to depreciate sharply.
The central bank fixed the midpoint at 6.2952 on Friday, only marginally weaker than Thursday's 6.2941. The midpoint is the PBOC's base rate from which the yuan can rise or fall 1 percent in a day.
"A relatively strong midpoint has been a stabilising factor for the yuan in recent weeks," said a trader at a Chinese commercial bank in Shanghai.
"However, jitters over what will happen in the euro zone and its impact on the dollar's performance in global markets loom large in the market."
China's GDP growth dropped to a near three-year low of 8.1 percent in the first quarter, and it recorded a rare trade deficit in February.
Economic uncertainty at home, combined with political and economic instability in the euro zone, have rattled investor confidence in the yuan, traders said.
Traders are increasingly doubting whether the yuan can still rise 2 or 3 percent this year as previously thought at the beginning of 2012, although many have not yet adjusted their forecasts for the Chinese currency's performance this year.
The yuan is expected to move inside a narrow range, with a floor seen at 6.33 next week, traders said.
Offshore one-year non-deliverable yuan forward contracts continued to trade at a discount to the spot price, changing hands at 6.3570 around midday for a discount of 0.97 percent to Friday's midpoint.
The offshore spot yuan price was at 6.3165 at mid-session, continuing to follow the onshore spot market.
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