The yuan closed slightly higher versus the dollar on Wednesday after the People's Bank of China set its mid-point marginally stronger. But expectations of yuan appreciation in the near term were waning amid continued wrangling between China and the United States over the value of the yuan on the political front, traders said.
A senior Republican lawmaker on Tuesday announced a US congressional hearing next week on Chinese trade practices he said were hurting American businesses and workers, but stopped short of promising action on the yuan legislation to deal with the concerns approved by the Senate last week.
China's Commerce Ministry urged the United States not to "politicise" economic issues on Wednesday and said that legislation aimed at pressing China to let the yuan rise faster violates international trade rules. Spot yuan closed at 6.3775 versus the dollar, up from Tuesday's close of 6.3813. It has still risen 3.33 percent since the start of this year and 7.04 percent since it was depegged from the dollar in June 2010.
Before trading began, the PBOC set the mid-point of the day at 6.3727, marginally stronger than Tuesday's 6.3749. The central bank uses the reference rate to signal the government's intentions for the yuan, which can rise or fall 0.5 percent from the mid-point in a day.
The BIS index for the yuan's real effective exchange rate (REER), or the currency's value against the basket after adjustments based on inflation, rose to 125.01 points in September from 120.47 in August, up 3.76 percent. The yuan's nominal effective exchange rate (NEER), its value before inflation adjustments, also rose to 115.58 from 112.54, up 2.70 percent in August.
Offshore, one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.3880 in late trade, almost unchanged from 6.3860 at the close on Tuesday. They implied yuan depreciation of 0.24 percent in 12 months from Wednesday's PBOC mid-point, compared with depreciation of 0.21 percent they implied on Tuesday.
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