The yuan ended up slightly against the dollar on Tuesday even though the Chinese central bank set a weaker mid-point, underpinned by market expectations for a stronger yuan in the long term as inflationary pressures linger. Spot yuan closed at 6.5060 versus the dollar, compared with Monday's close of 6.5074. It has appreciated 4.92 percent since it was depegged from the dollar in June 2010, and 1.27 percent since the start of this year.
Before trade began, the PBOC set the yuan's daily mid-point at 6.5108 against the dollar, weaker than Monday's 6.5089. The central bank uses the mid-point to express the government's intention for the yuan's movements. Dealers said the yuan still had potential to rise 5-6 percent this year as China needs to use the yuan's exchange rate to help fight consumer inflation, which in April eased a touch to 5.3 percent from a 32-month high in March of 5.4 percent.
Late on Monday, the BIS showed that the yuan's nominal effective exchange rate (NEER), or its value against a trade-weighted basket in April was at 111.73, down slightly from last month's 112.42. The fall in NEER was mainly driven by a weak dollar index in global markets, when it declined 3.9 percent, shrugging off the yuan's 0.9 percent rise in April. Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3800, little changed from 6.3840 at Monday's close. Their implied yuan appreciation in a year's time edged up to 2.05 percent from 1.99 percent.