The yuan closed up slightly against the dollar on Monday as traders said demand for dollars returned to the market, showing that a long-running yuan rally may be finally cooling off. The People's Bank of China (PBOC) fixed the midpoint at 6.1806 per dollar down 0.02 percent from Friday's rate, but the yuan moved up to close at 6.1317, up 0.05 percent.
The spot rate was 0.79 percent away from the midpoint, which traders said indicates dollar appetite is returning to the market as clients are no longer willing to bid the exchange rate to the strong-side edge of its trading band. Previously, the currency has routinely changed hands over 0.9 percent to the strong side of the midpoint, implying the spot yuan was being restrained by the fixing alone.
The exchange rate is legally allowed to rise or fall 1 percent from the midpoint on a daily basis. "Interest in buying dollars is unquestionably still on the rise," said a trader at a state-owned bank in Beijing. China has been trying to get firms to back off from betting too strongly on yuan appreciation and has required banks to reduce long yuan positions on their own accounts by the end of June. Regulators have also moved to close loopholes that allowed trading companies to book false or exaggerated transactions to get more yuan.
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