SHANGHAI: China's yuan softened slightly on Monday, despite a fall in the dollar overnight, as traders say the central bank appears committed to keeping the exchange rate stable at least through the Chinese New Year holiday.
The People's Bank of China (PBOC) reinforced its preference for stability by setting its daily midpoint weaker on Monday, reversing its usual practice of setting a firmer fixing in response to an overnight fall in the dollar.
The euro was near an 11-month high versus the dollar touched on Friday after the European Central Bank said banks would pay back a greater-than-expected 137 billion euros in loans this week.
Traders are uncertain whether the PBOC is still intervening in the market to prevent yuan appreciation, as it was widely suspected of doing in mid-December.
In November and early December, yuan appreciation expectations became entrenched, and dollar bids disappeared from the market. The central bank eventually intervened to restore yuan liquidity to the market.
Data released on Friday illustrated the dash for yuan in December, as it showed that Chinese corporates bought $54 billion more worth of Chinese currency than they sold that month. That marked the most largest monthly excess corporate yuan demand in at least two years.
Traders say client demand for yuan has remained strong in January, prompting some to suspect that large state banks, acting on behalf of the central bank, may still be buying dollars on an ad hoc basis to prevent the yuan from gaining sharply.
Adding to this suspicion is the fact that the yuan is consistently trading close to the top-end limit of its daily trading band but without breaching it.
But traders say that such small-scale, ad hoc interventions are nearly impossible to confirm.
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