SHANGHAI: The yuan eased slightly against the US dollar on Friday, after having notched up its strongest close in two months a day earlier.
That was largely due to a firmer footing for the dollar which lost much ground against the yen on Thursday as carry trades were unwound.
The yuan was 0.04% lower against the dollar at 7.2481 as of 0348 GMT.
It traded in a range of 7.2275 to 7.2512 during the morning.
The dollar was bolstered after data on Thursday showed the world’s largest economy expanded faster than expected and inflation slowed in the second quarter.
That reduced expectations of a large rate cut in September or a sudden easing by the Federal Reserve at next week’s meeting.
Market participants said the yuan was unlikely to bounce much higher in the short-term given that the rebound in the yen appears to have temporarily encountered obstacles.
“USDCNH (the dollar-offshore yuan pair) and USDCNY (the dollar-onshore yuan pair) may continue to trade sideways with an upside skew within the 7.20-7.30 range,” Maybank analysts said in a note.
The yuan is up 0.3% against the dollar this month but 2% weaker for the year to date, held back by worries about the state of the Chinese economy.
Spot yuan opened at 7.2399 per dollar and was last trading 31 pips lower than the previous late session close and 1.7% weaker than the midpoint.
China yuan firms to one-week high against weaker dollar
Prior to the market opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1270 per dollar, its strongest since July 1 and 959 pips firmer than a Reuters’ estimate.
The central bank has been gradually lowering its daily yuan official guidance, suggesting it is allowing some depreciation. Based on Friday’s official guidance, the yuan is allowed to drop as far as 7.2695.
Offshore yuan traded at 7.2542 yuan per dollar, down 0.19% in Asian trade.
Investor attention on Friday will be on the US personal consumption expenditure data - the Fed’s favoured measure of inflation, which is expected to come in at 0.1% on a monthly basis.
The Fed is expected to stand pat on rates next week but markets are fully pricing in a rate cut in September.
Traders anticipate 66 basis points of easing this year.
The dollar index was 0.010% lower at 104.32.
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