HONG KONG: China's yuan broke a five-day losing streak and edged higher on Thursday as investors judged that a recent drop may be overdone for now, though many expect the currency to maintain its downward trajectory in the coming weeks.
With concerns that an economic slowdown may be spreading, senior government officials including Premier Li Keqiang said the country would adopt moderate "fine tuning" of the country's economic policies, reiterating recent comments.
China's annual economic growth slowed to an 18-month low of 7.4 percent in the first quarter, raising the risk that the world's second-largest economy could miss its growth target of 7.5 percent this year, for the first time in 15 years.
Those concerns have prompted policymakers to reassure investors that Beijing wouldn't let economic growth slow sharply. Market participants have interpreted these comments as the growing likelihood of some targeted measures to boost growth rather than any big fiscal stimulus to spur economic growth.
On Wednesday, China urged local governments to quicken the pace of budgetary spending to guarantee construction of key projects. Some analysts argue this indicates that authorities are slowly relaxing their grip on monetary policy and keeping the currency weak.
Spot yuan changed hands at 6.2520 per dollar near midday, slightly above Wednesday's close of 6.2556. The People's Bank of China fixed the midpoint at 6.1705, slightly weaker from Wednesday's close.
In early trades, the yuan threatened to fall below an April 30 low of 6.2676 per dollar, its weakest since October 2012.
The Chinese currency has lost 3 percent against the dollar so far this year as the central bank attempts to flush out speculators, wiping out all its gains in 2013 and becoming one of the worst performers among its emerging market peers.
Global factors also weighed on the yuan with some analysts expecting an interest rate cut by the European Central Bank, which may weigh on the euro and therefore on the yuan because of the trade linkages.
Reuters reported earlier this month that the ECB is preparing a package of policy options for its June meeting. It includes cuts in all its interest rates as well as targeted measures aimed at boosting lending to smaller firms.
"The yuan midpoint fixing usually follows the move of the euro and it is likely to stay weak for some time," said Wang Ju, a senior strategist at HSBC in Hong Kong.
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