SHANGHAI: China’s yuan slipped on Friday to its weakest since December 2007, hit by capital outflow pressures and a yield gap with major economies, particularly the United States.

The yuan, one of region’s worst performing currencies, is on track to log its biggest weekly loss since February and has shed roughly 6.1% against the dollar so far this year.

Analysts and traders expect the currency to face selling pressure in the near term from a faltering economy but the pace of depreciation will likely be measured.

The central bank again set stronger-than-expected guidance for the yuan through its fixing.

Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate at 7.215 per US dollar, 164 pips weaker than the previous fix of 7.1986.

Spot yuan opened at 7.3400 per dollar and was changing hands at 7.3413 at midday, 116 pips weaker than the previous late session close, the lowest since December 2007.

A widening services trade deficit from outbound tourism or overseas study, and reduced incentives for Chinese exporters to convert proceeds back to yuan due to a wide interest rate gap, may be downside factors in the near term, said Becky Liu, head of China macro strategy at Standard Chartered Bank.

“The pair could stay range-bound in the foreseeable future without breaking materially higher, as the PBOC’s stance to defend the currency around current level remains very strong”, Liu said.

“I think the PBOC will take a further action such as state banks’ dollar selling in the market,” said Kiyong Seong, lead Asia macro strategist at Societe Generale CIB.

Yuan weakness this week is not an isolated event as higher oils prices and resilient data in the US helped strengthen the dollar, Seong said.

Market participants are anticipating a funding squeeze in the offshore yuan market to slow down this week’s yuan depreciation, UBS analysts wrote in a note.

Its rapid decline has prompted authorities to roll out a slew of measures to contain the weakness.

Meanwhile, a Chinese state-owned newspaper said on Friday that with China’s economy gradually recovering, there should be a little more confidence in the yuan exchange rate.

By midday, the global dollar index fell to 104.864 from the previous close of 105.059.

The offshore yuan was trading 97 pips weaker than the onshore spot at 7.351 per dollar.