China's yuan recouped early losses to end slightly higher against the dollar on Tuesday for the fifth straight session on expectations that the US Federal Reserve will cut interest rates again this week, dealers said.
The yuan closed at 7.1945 to the dollar on Tuesday, after moving in a small range of 7.1930-7.2010. It was up slightly from Monday's 7.1970 close. Before the market opened, the central bank set the yuan's daily mid-point at 7.2020, down from Monday's 7.1996. Tuesday's tight trading range showed the yuan was slowing down its advance against the dollar following recent steep gains.
"It is just normal for the yuan to consolidate a bit after its recent sharp rise," said a trader at a large state commercial bank. But the dealer said any further rise of the yuan might not be as sharp as last week since the market had already factored in another Fed rate cut.
The US Federal Reserve is expected to cut rates again this week following last week's 75 basis point emergency cut. Falling US rates make it even more likely that Beijing will rely on yuan appreciation rather than rate increases to combat inflation because it wants to avoid widening the gap between US and Chinese rates too rapidly.
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