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SHANGHAI: China’s yuan weakened slightly against the dollar on Tuesday to a five-month low, after its central bank set the official guidance rate at the weakest level in nearly two months.

The yuan was trading at 7.2447 per dollar at 0318 GMT, only 7 pips weaker than the previous close, after earlier hitting a 5-month low of 7.2455.

The currency is down 2.1% this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market.

Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1059 per dollar, the weakest level since March 1.

Market participants were watching closely for any moves in the official guidance rate.

PBOC loosened its grip on the yuan, and this could be another step for the bank to release some depreciation on the yuan in a gradual pace, Citi analysts wrote in a note, adding that they see more room for PBOC to guide the fixing weaker.

China’s yuan weakens to five-month low as dollar stays strong

“We remain bearish on CNY but revise our end-2Q USD/CNY forecast to 7.35 (from 7.40 previously) to acknowledge that the PBOC continues to manage the CNY depreciation carefully,” analysts at Bank of America said in a note.

The spot yuan opened at 7.2429 per dollar and was changing hands at 7.2447 at midday, 7 pips weaker than the previous late session close and 1.95% weaker than the midpoint.

The dollar remained strong, with investors taking cues from the U.S. Federal Reserve’s higher-for-longer interest rate stance.

The global dollar index rose to 106.11 from the previous close of 106.077.

The offshore yuan was trading 92 pips weaker than the onshore spot at 7.2539 per dollar.

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