Yuan dips versus dollar

China's yuan fell slightly against the dollar amid thin trade on Tuesday, as investors continued to hold their bets while awaiting the outcome of the US Federal Reserve's policy meeting.
The yuan traded at 7.9048 at 0830 GMT against the dollar, versus Monday's close of 7.8991, after the central bank set the yuan's mid-point at 7.9049, weaker than 7.8998 of the previous day.
The Chinese currency had moved in a narrow range on Tuesday, staying mostly below the 7.9000 level. It first breached the level on September 28 and hit a high of 7.8954 - the highest level since Beijing revalued the yuan by 2.1 percent and depegged it from the US currency in July 2005.
"Trading was thin just like Monday, with the domestic market echoing its global peers," said a Shanghai dealer with a European bank. "Activity could return to the normal level after the Fed meeting ends on Wednesday." Globally, the dollar began the week on an upbeat note on Monday but steadied against the yen on Tuesday, awaiting the Fed's future policy indication.
The Fed is widely expected to hold rates at 5.25 percent for the third straight meeting and repeat warnings on inflation, but the market could still look for clues from the tone of the Fed statement, traders say. The yuan has now appreciated 2.60 percent further since its revaluation. It has mostly traded within a narrow range of 7.9050 to 7.9100 in the past two weeks as the market, following a week-long national holiday, digested a faster-than-usual yuan appreciation in the second half of September.
The central bank, by buying many of the dollars generated by China's large trade surplus and investment inflows, tries to keep the yuan stable, but that has generated excess liquidity in the banking system and made it hard for the bank to control money supply growth, dealers say.
Many traders and economists expect the yuan to pick up its pace of ascent again, as a more flexible currency regime could do more good than harm to China's economy.
Such expectations were backed by a senior central bank official's speech on Tuesday, referring to improved flexibility of the yuan as part of Beijing on-going financial reform.
"To deepen financial reforms, we must make interest rates more market-orientated and make the exchange rate more flexible," Wu Xiaoling, a central bank deputy governor told a financial forum in Beijing. Even though Wu said nothing more than repeating Beijing's earlier pledges, it still sends a signal to the market that the government is serious in reforming its foreign exchange regime, said a Shanghai-based trader.
In late trade, one-year onshore yuan/dollar swaps were quoted at between 2,033 and 2,100 pips, suggesting the yuan will be up 2.64 to 2.73 percent in a year's time against its mid-point on Tuesday, according to the China Foreign Exchange Trade System. One-year offshore non-deliverable forwards quoted the yuan at 7.6600/7.6630 to the dollar at 0759 GMT, forecasting a yuan rise of 3.16 to 3.20 percent.