Yuan falls versus dollar

The yuan fell against the dollar on Monday after the Chinese central bank set a lower reference rate for a ninth straight day in response to the US currency's global strength. But in a sign that Chinese authorities probably still want to continue yuan appreciation against a basket of currencies, the central bank again set the yuan's reference rates against the euro and the yen sharply higher.
Meanwhile, uncertainty over the dollar's longer-term global trend, and how China will respond, pushed one-year offshore dollar/yuan volatilities up to a more than one-month high of 7.0 percent bid from Friday's close of 6.8 percent.
"The yuan's recent fall versus the dollar lags far behind the strength of the global US Dollar Index, and its loss has largely been offset by gains against the euro and the yen," noted a dealer at major Chinese commercial bank in Shenzhen.
"Despite China's slowing economy and exports, domestic inflationary pressure remains high. Also, authorities are too busy with the Olympics to discuss a change in currency policy." For these reasons, the yuan is likely to stay firm against most currencies in the next few months and rebound against the dollar as soon as the US currency's global rally loses steam, he and other traders said.
In the latest sign of inflationary pressure, China said on Monday that annual producer price inflation rose sharply to 10.0 percent in July from 8.8 percent in June. That far exceeded analysts' median forecast of 9.1 percent.
And the official Xinhua news agency reported, citing the customs administration, that China posted a trade surplus of $25.28 billion in July, up from $21.4 billion in June and well above economists' forecasts in a Reuters poll of $20.5 billion. Exports grew 26.9 percent from a year earlier, Xinhua said, above forecasts of 18.1 percent.
Before trade began on Monday, the central bank set the yuan's daily mid-point against the dollar lower at 6.8638 against Friday's reference rate of 6.8585. That set the tone for spot yuan to trade in a range of 6.8589 to 6.8664 through the early afternoon on Monday, down from Friday's close of 6.8588. It did not show any clear reaction to the PPI or trade data.
The yuan has fallen 0.8 percent against the dollar since it hit a high of 6.8103 in mid-July, its strongest level since China revalued the currency in July 2005. But the yuan's fall has lagged far behind a 6.6 percent jump in the US Dollar Index during the same period.