The yuan closed down against the dollar on Friday as traders said a weaker-than-expected central bank fixing sparked a wave of short covering in dollars, although the market was still confident in continued yuan appreciation in the near term. Spot yuan closed at 6.3930 per dollar, down from 6.3877 at Thursday's close but still within arm's reach of its trading peak of 6.3820 hit on Tuesday.
It has now appreciated 6.77 percent since it was depegged from the dollar in June 2010 and 3.07 percent so far this year. The PBOC surprised the market last week by letting the yuan rise at its fastest weekly pace since the global financial crisis in 2008, sparking speculation that China might widen the yuan's trading band, use the currency as a key tool to fight inflation or let it appreciate versus a trade-weighted basket.
But on Friday, the central bank fixed the mid-point weaker at 6.4032 from Thursday's 6.3942 after having pulled the yuan back slightly since Tuesday's record high of 6.3925. Echoing onshore weakness, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.2895 in late trade, up from 6.2850 at Thursday's close. Their implied yuan appreciation in a year's time fell to 1.80 percent from 1.88 percent.
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