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The yuan closed flat on Monday after a day of restrained volatility, as traders waited for further cues on how economic uncertainties in Europe will play out in the Chinese currency. The People's Bank of China (PBOC) allowed the yuan to post a historical record monthly decline against the dollar in May, guiding the official midpoint down 1.1 percent over the course of the month.
Part of the reason for guiding the yuan down against the dollar appears to be that, with the euro hit by the sovereign debt crisis in the euro zone, the yuan is trading around its strongest level against the euro since early 2002, posing a challenge for Chinese exporters. Europe accounts for more than a fifth of Chinese exports -around 16 percent if the United Kingdom is excluded - which some analysts say has given the PBOC an incentive to push the yuan down slightly against the dollar, so as to prevent it from rising further against the euro.
The central bank set the dollar-yuan midpoint at 6.3276 on Monday morning, slightly stronger than its setting on Friday, but the spot rate ignored the fixing and stayed well within the range it traded on Friday, remaining tightly range-bound between 6.3685 and 6.3633. It closed at 6.3645, a mere 45 pips away from Friday's close.

Copyright Reuters, 2012

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