SHANGHAI: China's yuan eased marginally against the dollar on Friday morning, making a slow retreat from record highs struck earlier this week as the central bank tugged the market back by setting a weaker official daily trading range for a second day running.
The yuan changed hands at 6.2338 at midday, slightly weaker than Thursday's close of 6.2334.
The central bank set its midpoint at 6.2945 per dollar versus Thursday's 6.2905. Under China's managed float regime, the exchange rate can diverge 1 percent either side of the midpoint fix, set by the central bank each day.
The yuan did not hit its strong-side limit during the morning session, having struck the limit on each of the 13 previous trading days.
In previous days, the spot market began to stall as quotes concentrated at the strong side of the trading band, depressing transaction volumes and sidelining customers, traders said.
Traders said there were signs that the yuan's recent strength may be waning.
"The central bank's consecutive stronger fixes have buoyed demand for dollars, and even clients who before were steering well clear have warmed back up to buying the currency," said a trader at a large state-owned bank in Shanghai.
"Given (the weaker midpoints) in the last two days, I can't see the recent steep appreciation of the yuan continuing."
Other traders believed the pressures on the yuan to appreciate would be present through December, but all agreed that the rally is likely to end by early 2013 as the market gradually absorbs excess dollars.
Some market observers have suggested that the People's Bank of China (PBOC) has been quietly ordering state-owned commercial banks to snap up dollars to stem the yuan's rise.
Data from the Bank for International Settlements show the yuan also strengthened in nominal trade-weighted terms in October, the first time it has done so since July.
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