SHANGHAI: The yuan slipped against the dollar on Wednesday and traded far below the central bank's midpoint, with traders saying the central bank had recently set a high daily fixing for the yuan for political reasons.
The People's Bank of China (PBOC) on Wednesday fixed the yuan's mid-point at 6.3004 per dollar, the strongest midpoint since May 11, as US President Barack Obama and his Chinese counterpart Hu Jintao met on the sidelines of a G20 summit in Mexico.
The midpoint is the base rate from which the central bank allows the yuan to rise or fall 1 percent in a single day.
A senior US official said earlier that Obama would raise US concerns about the currency during the summit. Washington has pressed Beijing to let the yuan appreciate as US critics say its artificially low valuation hurts American exporters.
Although the strong midpoint on Wednesday partly reflected a decline in the dollar overnight, the PBOC also typically guides the yuan higher near the end of each year or half year to make the currency's value look better from the US viewpoint, traders said.
"The PBOC will most likely price the yuan near 6.30 per dollar before the end of this month," said a trader at a European bank in Shanghai. "But the market expects the currency to pull back afterwards and would rather price it around 6.35."
Traders said the yuan was likely to trade between 6.33 and 6.37 per dollar in coming weeks - disregarding the PBOC's midpoint - unless the US dollar index moved sharply in global markets.
Spot yuan was trading at 6.3557 per dollar at midday, down slightly from 6.3545 at Tuesday's close.
Traders said investor sentiment on the prospect of further yuan appreciation had weakened significantly in recent months, making exporters reluctant to sell foreign exchange earnings to banks as they have done since the yuan's landmark revaluation in July 2005.
With the yuan now under pressure to depreciate partly as a result of a significant slowdown in the world's second-largest economy, the central bank has recently set a series of midpoints stronger than the yuan's trading level, seeking to keep the exchange rate relatively stable.
In May, the yuan posted its biggest monthly drop on record against the dollar, falling nearly 1 percent, partly in response to the strengthening of the US dollar in global markets and partly as a result of domestic factors.
China's economic growth slowed to a near three-year low of 8.1 percent in the first quarter, and many economists expect GDP growth to fall below 8 percent in the second quarter.
Offshore one-year non-deliverable yuan forward contracts changed hands at 6.4060 on Wednesday afternoon to imply yuan deprecation of 1.65 percent against the dollar in the next 12 months based on Wednesday's midpoint.
Offshore spot yuan traded at 6.3620 at midday, slightly weaker than the onshore spot level.
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