SHANGHAI: China's yuan hit its strong-side limit with Friday's first trade and firmly hugged the trading band boundary all day until weakening suddenly before the market close.
The yuan opened at the lower limit of 6.2380, its strongest level ever, and held steady until just before 4 pm (0800 GMT), when it dropped to a close of 6.2489, reversing all of the day's gains.
Traders suggested the sudden weakening was due to central bank intervention through state-owned financial institutions, and that it signaled that the People's Bank of China was unlikely to allow the yuan to appreciate further through stronger mid-point fixes.
"We guess that there is a good possibility that the central bank intervened, although we don't fully know the particulars," said a trader at a city commercial bank in Shanghai.
The PBOC set its daily midpoint at 6.3010 versus the dollar on Friday morning, the strongest midpoint level since June 20.
That granted the yuan more space to appreciate after the currency closed at its strong-side limit of 6.2417 on Thursday.
Thursday marked the first time on record that spot yuan has bumped up against the strong-side limit.
The central bank allows the exchange rate to rise or fall by 1 percent from the mid-point it sets each morning. That band was increased from 0.5 percent in April this year.
Some analysts have speculated in recent weeks that the PBOC is intervening to strengthen the currency in response to anti-China rhetoric in the US presidential election campaign.
But recent events suggest that the PBOC's stronger fixings have primarily acted as a restraint against what authorities might consider excessive appreciation, rather than the cause of such appreciation.
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