Yuan rises vs dollar after central bank sets record high mid-point

"I can see some dollar demand of large firms today, which caps yuan's further rise," said a dealer at an European bank in Shanghai.

Spot yuan was at 6.3832 versus the dollar, stronger than Thursday's close of 6.3920 but below its all-time high of 6.3705 reached on Aug. 30. It has risen 3.24 percent so far this year and 6.94 percent since its depegging in June 2010.

Before trading began, the PBOC fixed the day's mid-point at a record high 6.3797 , compared with Thursday's 6.3878. The central bank uses the fixing to express the government's intention for the yuan's daily movements.

Gains in the yuan were also capped by concerns over the eurozone crisis.

European Central Bank said on Thursday it was joining with other major central banks in a joint action coordinated with the US Federal Reserve to ease dollar funding for stricken European banks, but dealers remained sceptical.

"We don't think the help can continue for a long time, so we will keep cautious in the near term," said a dealer at a Chinese commercial bank in Shanghai.

However, most players maintain the long-held view that the yuan will continue to gradually appreciate for the rest of the year

Several dealers expect the yuan could rise around 4 percent to around 6.35 this year as Beijing uses it to fight high inflation, reduce the economy's reliance on exports and raise the currency's global status.

Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3250 in midday trade, down from Thursday's close of 6.3320. Their implied yuan rise in a year's time rose to 0.86 percent from 0.75 percent.

Copyright Reuters, 2011