SHANGHAI: China's yuan edged up against the dollar Friday, continuing a slow march higher as tensions over the Ukraine crisis support safe-haven bids for the currency, but moves were kept in check ahead of an annual parliamentary meeting.
Traders and analysts say that market participants were cautious ahead of the meeting starting on Saturday, which is expected to prioritise stimulus and stability in a politically sensitive year.
Upward pressure on the yuan also eased after a much weaker-than-expected midpoint fixing by the central bank. The People's Bank of China (PBOC) set the midpoint at 6.3288 per dollar prior to the market open, compared with 6.3143 per dollar predicted by a Reuters model. Some traders and analysts confirmed that Friday's guidance also came in much weaker than their forecasts, a sign that the authorities were keen to rein in rapid yuan gains.
The PBOC has repeatedly set its daily benchmark for the yuan weaker than market forecasts in recent sessions as the yuan rose to multi-year highs.
"Today's mid-price may convey the regulator's attitude. The market is now very cautious about appreciation, so we're likely to see fluctuations in a narrow range," said a foreign bank trader.
Spot yuan opened at 6.3201 per dollar and was changing hands at 6.3199 at midday, just nine pips firmer than the previous late session close. The offshore yuan was trading at 6.3225 per dollar, firming from a close of 6.3232 on Thursday.
The yuan's rise came despite gains in the dollar, lifted by falling US jobless claims data and expectations that higher US interest rates are all but a certainty at the March 15-16 meeting of the Federal Reserve.
Fed Chair Jerome Powell overnight repeated comments from Wednesday that he would back an initial quarter percentage point increase in the Fed's benchmark rate.
The dollar was boosted further on Thursday by investors worried by a fire at the largest nuclear power plant in Europe during intense fighting between Russian and Ukrainian forces. Emergency services later said that the fire near the power plant had been put out.
The dollar index rose to 97.949 on Thursday, up 0.2% from the previous close.