China's yuan dropped against the dollar on Friday, continuing a modest correction despite US legislators stepping up pressure on China by introducing a bill aiming to push for faster appreciation of the currency.
Dealers said the latest action in the US senate had no immediate impact on trading, although some warned that such moves risked backfiring as China has insisted it would not alter its currency policy in response to foreign pressure.
The yuan ended at 7.6207 to the dollar, down from Thursday's close of 7.6188. That compared with Wednesday's intraday high of 7.6155, the yuan's strongest level since it was revalued and depegged from the dollar in July 2005.
Dealers said the yuan was set for a continued correction in the coming days to digest its gains after hitting post-revaluation highs for six straight sessions, before an overdue pullback on Thursday.
"The yuan needs a break technically after reaching a record high on Wednesday. It can't go too strongly just in one direction," said a dealer at a major Chinese commercial bank. "The US dollar is going strong against other currencies, which also may have helped to prompt a pull-back." Dealers said, however, that recent weakening in the yen on global markets had limited impact on the yuan's trade on Friday.
Before the start of trade, the central bank fixed its daily mid-point at 7.6224 to the dollar, below Thursday's 7.6208. The mid-point had been set at a post-revaluation peak for six straight days before Thursday. Despite the short-term corrective pressure, dealers said the long-term trend for the yuan to appreciate remained unchanged.
Two senior members of the US Senate Banking Committee introduced legislation on Thursday that would facilitate the US Treasury Department in confronting China's currency practices. Beijing has drawn criticism from US lawmakers that the Chinese currency is undervalued and gives China an unfair advantage in trade. Their proposal came after a similar bill was unveiled by four senators last week.