The yuan snapped three days of gains and eased to 6.50 per dollar on Monday after the People's Bank of China set a weaker mid-point, as the dollar index climbed to a seven-week high on worries over Greek debt. Traders said the mid-point only fell a few pips, lagging far behind a strengthening dollar, which reflected expectations that prospects for the yuan's uptrend would not change.
China will continue to use the exchange rate to fight imported inflation and to make adjustments in the country's economic structure. Spot yuan ended at 6.5050 versus the dollar compared with Friday's 6.4926. The Chinese currency has now appreciated 4.94 percent since it was depegged from the dollar in June 2010, and 1.29 percent since the start of this year.
The euro fell broadly on Monday and hit a record low against the Swiss franc, hurt by ongoing worries about the potential for debt restructuring by Greece, with market positioning pointing to the chances of a further drop. The weak euro pushed up the dollar index which rose 1.06 percent in early European trade to a seven-week high of 76.
The People's Bank of China typically uses dollar strength to let the yuan pull back after a leg of appreciation, but onshore dealers widely expect the central bank has some preset targets for the yuan to rise to certain levels over a period of time. Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3930, rising from 6.3680 at Friday's close. Their implied yuan appreciation in a year's time was down to 1.67 percent from 2.07 percent.
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