China's yuan closed sharply weaker against the dollar on Friday, at its softest since late August, pressured by a spat of dollar purchases late in the session, in part fuelled by expectations of an imminent rise in US interest rates. The dollar index jumped 0.7 percent in early European trade, rebounding from its overnight decline after the European Central Bank's latest easing steps fell short of market expectations.
Before the onshore market open on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.3851 per dollar, 0.21 percent firmer than the previous day's closing quote of 6.3972, the strongest gain in a month. In line with the strong midpoint, the spot market opened at 6.3867 per dollar and surged to a two-week high at 6.3850 in early trade.
But it later dipped and accelerated its fall in the last 30 minutes of trading after the opening of the European market and hit an intraday low of 6.4124, its weakest level since August 27. It closed at 6.4020, sharply weaker than Thursday's close. "Bargain-hunting in dollars lasted for most of the session, and stepped up late in the session," said a trader at a European bank in Shanghai. "Sentiment towards the dollar has strengthened of late amid rising expectations of a US interest rate hike this month."
The yuan held steady against the dollar for most of the week after the International Monetary Fund (IMF) admitted the Chinese currency into its global currency basket, with some traders citing usual PBOC intervention to keep it stable. In late Friday trade, the offshore yuan was trading about 0.7 percent weaker than the onshore spot at 6.4450.