SHANGHAI: China's yuan pulled back on Tuesday after touching an 11-day peak in early trade, but moves were muted as traders focused on upcoming inflation data from the US and China for clues to the timing of interest rate hikes. Traders said while there was little room for a clear break higher given broad dollar strength, the yuan continued to enjoy short-term support after stronger-than-expected trade data released on Sunday.
"There's still upside pressure from FX sales toward the year end, so we're bullish on the yuan and could see it touching June highs. The Fed may not hike as quickly as imagined," said a trader at a Chinese bank. For its part, China's central bank will likely move cautiously on loosening monetary policy to bolster the economy, as slowing economic growth and soaring factory inflation fuel concerns over stagflation, policy sources and analysts said.
Before the market open, the People's Bank of China set the yuan's daily midpoint at 6.3903 per dollar prior to market open, its firmest in nearly two weeks. That helped spot yuan to strengthen in early trade after opening at 6.3912 per dollar, pushing it to a top of 6.3888. By midday it had softened to 6.3958 per dollar, 28 pips weaker than Monday's late session close. Offshore yuan also weakened to trade at 6.3936 per dollar from Monday's close of 6.3886.
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