SHANGHAI: The yuan traded at its weakest point against the dollar in seven months on Tuesday as the traders continued to worry about the fate of the euro zone and slowing growth at home.
The midpoint fix was set at 6.3292 per dollar, down from Monday's fix but slightly stronger than the spot closing price of 6.3694.
However, spot yuan also declined, opening at 6.3700 and then sliding to 6.3782, its lowest against the dollar since November 2011.
The yuan posted a record monthly decline against the dollar in May on worries that the Chinese economy may be cooling more rapidly than earlier expected.
The dollar index, which the central bank frequently uses as a reference when setting the midpoint, declined in overnight trading alongside global equity markets, as a brief spurt of optimism over a bank rescue in Spain wore off.
China's yuan traded further from the central bank's daily fixing than ever before on Monday, as policymakers appear increasingly content to tolerate a moderately weak currency as long as it avoids sharp swings.
However, this was not due to volatility in spot prices but rather due to movements in the fixing. The central bank has strengthened the midpoint but spot prices stayed tightly bound in the same range they have traded in since May 31. This effectively dragged spot prices away from the midpoint by 0.83 percent.
The central bank widened the yuan trading band in April, allowing spot prices to diverge from the official fix by 1 percent, up from 0.5 percent.
Traders said that in addition to concerns about markets in Europe and the United States, customer appetite for dollars remains strong, maintaining downward pressure on the yuan's exchange rate.
"(Recent yuan weakness) isn't due to expectations. Demand for dollars really is pretty large," said a trader at a joint-stock bank in Shanghai.
The weakening value of the onshore yuan has caused offshore non-deliverable forward (NDF) contract spreads to shrink slightly. NDFs continue to trade at a rate that implies slight depreciation of less than 1 percent for the yuan this year.
The offshore yuan exchange rate remains tightly bound to the onshore rate as it has since February.
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