Yuan softens slightly on yen recovery, volumes moderate

SHANGHAI: The yuan traded at its weakest level in four weeks on Monday after the central bank lowered its guidance midpoint rate following an overnight rise in the dollar.

Traders said the central bank had intervened to keep the yuan low last week, disregarding a softening trend in the dollar index, in order to counter moves by some other Asian central banks to weaken their currencies.

However, the yen bounced back from a 2-1/2 year low against the dollar on Monday as option-related buying prompted short-term players to give up a further test of the yen's downside for now.

Central bank intervention in the Chinese forex market is always difficult to prove, but traders say unusually heavy trading volumes - like the $22 billion posted on Friday - often indicate the influence of the People's Bank of China (PBOC) in the market.

Transaction volumes moderated during the Monday morning session, standing at slightly more than $6 billion by midday.

Volumes are usually muted in the week leading to the Chinese Spring Festival, which will see mainland markets close from Feb. 11 through February 15.