China's yuan rose slightly on Wednesday, as better than expected GDP data and a weaker dollar overnight prompted a stronger central bank mid-point. The yuan traded around 6.3116 at midday, 34 pips stronger than Tuesday's close, after the central bank set the mid-point stronger at 6.3205.
Fears of a slowing economy had dampened expectations of yuan appreciation in recent weeks, as traders expected the central bank to hold the yuan steady in order to protect exporters amid weak external demand and lower-than-expected trade data growth in December.
But China's economy grew 8.9 percent in the fourth quarter last year, higher than 8.7 percent growth that economists had expected. Stronger growth could give Chinese policymakers more freedom to push further yuan appreciation this year, in an attempt to encourage domestic consumption. In the offshore non-deliverable forward market, one-year NDFs traded at 6.2920 by midday, 110 pips stronger than Tuesday's close. The rate implied 0.31 percent appreciation over the next year, up from 0.19 percent appreciation implied at Tuesday's close. The onshore spot rate has now risen 8.2 percent since it was depegged in June 2010.