China's yuan ended marginally lower against the dollar on Thursday, despite another slide by the US currency in global markets, as the Chinese central bank again acted to keep the yuan soft. The yuan edged up in the late afternoon to an intra-day high of 7.5105, just off last week's post-revaluation high of 7.5101, as the dollar tumbled to fresh lows against the euro.
But the Chinese currency ended at 7.5145, slightly lower than Wednesday's close of 7.5135. Before trade began on Thursday, the central bank set the mid-point at 7.5175, down from Wednesday's reference rate of 7.5170. "By setting a weaker mid-point, the central bank is sending out a clear signal that it does not want to see a faster rise of the yuan," said a trader with a Shanghai-based bank.
"The yuan would otherwise have remained in an uptrend today like most other major currencies." Traders said the central bank appeared to be restraining yuan appreciation to deter speculators from using the narrowing of the US-China interest rate gap to push up the currency, and because of continued concern about US economic weakness.
After Tuesday's US interest rate cut and in response to fresh Chinese monetary tightening, the gap between one-year US dollar LIBOR and China's one-year central bank bill yield shrank to 140 basis points on Wednesday. That was down from over 200 bps as recently as July, and the smallest gap since the yuan's peg to the dollar was abolished in July 2005.
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