China's yuan ended slightly weaker on Wednesday after the central bank, acting through big state-owned banks, blocked it from breaching the psychologically key 7.0 mark against the dollar, dealers said, although the move did not imply a shift to slower yuan appreciation. The yuan closed at 7.0017 to the dollar on Wednesday, down slightly from Tuesday's 7.0008.
Some market players tried to push the yuan higher late in Wednesday's session on expectations that the Chinese currency would break through the key level this week, but they met resistance from dollar buying by major state banks, dealers said.
The dollar purchases virtually confined the yuan to an extremely narrow range of only three pips - from 7.0015 to 7.0017 - in the final 100 minutes of trading, dealers said. "The market is puzzled by the central bank's indirect intervention to check the yuan's rising momentum," said a dealer at a major Chinese commercial bank.
"Some are speculating that the central bank may wait for March inflation data to allow the yuan to break through the key level, to convince critics of the necessity of faster yuan appreciation," he said. Many dealers expect March consumer inflation, to be announced in the latter part of next week, to remain above 8.0 percent, but slightly lower than an 11-year high of 8.7 percent in February.
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