SHANGHAI: China's yuan ended slightly weaker after hitting an intraday record high against the dollar on Wednesday in the wake of a strong mid-point fixing, which underpinned expectations the Chinese currency will rise further in the near term.
The yuan was pushed up by a weak dollar index, while the euro held on to overnight gains as investors cut bearish positions in the common currency after upbeat data bolstered risk appetite.
"The market still believes the yuan has potential to rise further in 2012. It could be a turning point," said a dealer at a Chinese bank in Shanghai.
Spot yuan closed at 6.2946 per dollar after hitting an intraday record high of 6.2919 compared with last Friday's close of 6.2940. It rose 4.7 percent in 2011.
Before trading began, the PBOC fixed the dollar/yuan mid-point at a record high of 6.3001, up slightly from Friday's 6.3009. The central bank uses the fixing to express the government's intention for the yuan's movements in a day.
The market was closed on Monday and Tuesday for the New Year's Holiday.
Dealers said the central bank set the mid-point only eight pips firmer even though the dollar index drop 0.6 percent, which signalled its intention to keep the yuan in a small range.
They still see the yuan appreciating in 2012 as China faces US pressure to do more to rebalance bilateral and world trade, while it continues to record trade surpluses.
But the rate of appreciation is expected to slow to about 3 percent next year, with most of the gains happening in the second half, they said.
Offshore, benchmark one-year non-deliverable forwards (NDFs) were little changed at 6.3270 late on Wednesday against 6.3290 at the close on Friday, still implying that the yuan would depreciate.
They now imply 0.43 percent depreciation over the next year, compared with a 0.46 percent fall implied on Friday.
One-year NDFs began to mainly imply yuan depreciation in late September, reversing a general trend of forecasting yuan appreciation in place since the yuan's revaluation in 2005.
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