China's central bank forced the yuan to weaken from record highs against the dollar on Thursday, by setting a lower official daily trading range when the market had been signalling the yuan could have risen further. There was also a suspicion of intervention to take the yuan down a notch as state institutions bought dollars towards the close, traders said.
The spot yuan ended the day at 6.2334 to the dollar, easing from Wednesday's record close of 6.2252. The People's Bank of China (PBOC) set the daily midpoint at 6.2905 versus Wednesday's 6.2881, the first time it has weakened the midpoint in eight days. This midpoint setting put Wednesday's record out of reach.
Under China's managed float regime, the exchange rate can diverge 1 percent either side of the midpoint fix, set by the central bank each day. The spot yuan has changed hands at the strongest rate allowed by the midpoint fixing every day in the previous seven trading days, as the market strained at the central bank's leash. The exchange rate closed the maximum 1 percent away from the midpoint on Wednesday, so by lowering the midpoint fix the central bank put the yuan's record close out of reach.
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