Yuan suffers biggest daily loss

The yuan suffered its biggest daily fall against the dollar in nearly four months on Tuesday mainly because the Chinese central bank surprised the market by fixing a sharply weaker mid-point, or its daily reference rate, sparking speculation about the central bank's intentions.
A nearly 1 percent rise in the US dollar index in early European trade on Tuesday also depressed the Chinese currency slightly late in the Asian session, dealers said. Before trade began on Tuesday, the Chinese central bank set the yuan's mid-point at 6.8285 against the dollar, down 0.07 percent from Monday's 6.8235 and its biggest daily loss since December 1 last year.
That guided spot yuan to trade between a range of 6.8270 to 6.8345 on Tuesday and finish at 6.8306, down 0.10 percent from 6.8238 at the close on Monday, its biggest daily loss since February 2 this year. Traders said the central bank's move could have been due to fresh tensions on the Korean Peninsula, the visit of US Treasury Secretary Timothy Geithner to Beijing from Saturday and recent sharp fluctuations of the US currency on global markets.
Several dealers who spoke to Reuters, however, agreed that a single day's unexpected weaker mid-point, or the central bank's benchmark from which the yuan may rise or fall 0.5 percent in a day, was not a reliable indicator of a change in policy. "Despite the surprise today, the mid-point is still in the tight range (of 6.8200 to 6.8299) the central bank has maintained since late April," said a dealer at a European bank in Shanghai.
He and others believed the central bank would keep the yuan's mid-point in that range at least for another couple of weeks. A dealer at a US bank in Shanghai said he believed that the weaker mid-point might be related to North Korea's latest nuclear test, with rising tensions from the incident pushing down Asian currencies, in particular the South Korean won.
The European bank dealer felt the Chinese authorities could be engineering a slight fall in the yuan for now so as to pave the way for a slight rise early next week during Geithner's visit, where he will be discussing Sino-US economic ties.