SHANGHAI: China's yuan weakened on Friday after the dollar rebounded in global markets and as investors expected further monetary easing from the central bank, possibly as early as this weekend, traders said.
"The dollar's rebound capped the yuan's slight strengthening trend of late," said a trader at a Chinese commercial bank in Shanghai.
The dollar gained overnight thanks to strong US inflation data and as the European Central Bank raised expectations for further euro zone easing.
The People's Bank of China set the midpoint rate at 6.3436 per dollar prior to market open, 0.05 percent weaker than the previous fix of 6.3402.
In the spot market, the yuan opened at 6.3470 per dollar and was changing hands at 6.3542 at midday, 0.13 percent weaker than the previous close and weakening more than the official guidance rate.
The PBOC is widely expected to cut interest rates and banks' reserve requirements further in coming months to help support the slowing economy. Data on Monday is expected to show third-quarter growth cooled to 6.8 percent from a year earlier, the slowest pace since the global financial crisis, according to a Reuters poll.
"The yuan might fall if the central bank cuts interest rates this weekend." said a trader at a foreign commercial bank in Shanghai.
Still, sentiment towards emerging Asian currencies has improved in the last two weeks as expectations of an imminent US interest rate hike fade, taking some steam out of the dollar, a separate Reuters poll showed.
Sentiment toward the yuan has turned positive for the first time since early August as the PBOC succeeded in steadying the currency after its surprise devaluation on Aug. 11, according to the survey of 20 fund managers, currency traders and analysts conducted from Tuesday through Thursday.
Reflecting that sentiment, the onshore yuan has generally strengthened, albeit slightly, for the past three weeks, buoyed partly by a slew of Chinese reforms, which traders say would enhance the Chinese currency's international status.
The offshore yuan was trading 0.07 percent weaker than the onshore spot at 6.3585 per dollar.
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