China's currency eased slightly on Monday but held near four-month highs as the US Federal Reserve's new stimulus programme kept the dollar under pressure. Traders saw limited downside for the yuan, however, arguing the Fed's move last week had already been largely priced in, and pointing to a pre-existing trend of increased yuan demand from Chinese corporates.
"The effect (of the Fed's action) is about 80 percent complete. There may a period of technical adjustment, but the fundamental dollar weakening trend won't go much further," said a foreign exchange dealer at a foreign bank in Shanghai. Spot yuan traded in a narrow range, briefly touching a fresh four-month high of 6.3122 per dollar in the morning before retreating to close at 6.3173, down 28 pips from Friday's close. It had risen nearly 0.2 percent on Friday after the Fed unveiled a far larger bond buying programme than markets had expected.
Before trade began, the People's Bank of China (PBOC) set its daily midpoint at 6.3295, a shade stronger than Friday's fixing of 6.3317. The fixing was in line with the PBOC's usual practice of setting a stronger yuan fixing in response to a weaker dollar index overnight.
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