Yuan ends down

China's yuan ended slightly weaker against the dollar on Wednesday as the central bank lowered its reference rate, but trade was slow as dealers took to the sidelines ahead of China's economic data expected on Thursday.
Many traders were awaiting June inflation data, with some analysts expecting Beijing to adopt monetary tightening measures such as interest rate hikes if the data points to a high rate of inflation.
"If the CPI data that comes out tomorrow is above 3.5, the yuan may appreciate faster to 7.54 in the coming days. If not, the yuan could even slip a little by the end of the week," said a currency trader with a Chinese bank, referring to the consumer price index.
China set its inflation target at 3 percent for this year, but some economists believe June's inflation data could surpass the target by up to 1 percentage point, putting it well above May's 3.4 percent rate.
The yuan closed at 7.5640 to the dollar on Wednesday, after touching an intraday high of 7.5631, and compared with Tuesday's finish at 7.5629. Before the start of trade on Wednesday, the People's Bank of China fixed its daily mid-point at 7.5661 to the dollar, down from Tuesday's 7.5651.
"It is quite normal for the central bank to set the yuan at a lower mid-point after it reached a post-revaluation high yesterday and rose steadily during the last two trading days," the trader said.
On Tuesday, the Chinese currency touched 7.5618, a record since Beijing revalued the yuan and depegged it from the dollar in July 2005, as the dollar slipped globally on US subprime lending worries. Traders said there was still upward pressure to the yuan as the dollar fell to new lows against the euro on Wednesday.
But some analysts expect the yuan to appreciate at a slower rate in the second half of this year as China moves to trim its huge trade surplus partly by reducing export tax rebates on select products. Exports could also be hurt by increasing overseas concerns about the safety of Chinese products.
Lehman Brothers economist Mingchun Sun said in a report this month that he expected the yuan to move to 7.45 by the end of the year. This projection suggests that the yuan would appreciate another 2.19 percent in the second half, down from a 2.64 appreciation rate in the first six months.
One-year offshore non-deliverable forwards (NDFs) quoted the yuan at 7.2290/7.2330 at 0929 GMT, indicating appreciation of 4.61 to 4.66 percent in a year's time from Wednesday's mid-point, down from 4.62 to 4.68 percent on Tuesday.