China's yuan weakened below the daily fixing for a second consecutive day on Wednesday after the central bank set the lowest midpoint in more than two months, in a sign authorities are determined to stamp out speculative bets in the currency. The People's Bank of China (PBOC) is possibly aiming to inject more two-way volatility into the market and prepare it for more reforms, by setting the daily yuan trading midpoint against the dollar aggressively weaker since last Tuesday.
While the yuan has been allowed to move in a 1 percent trading band against the US dollar up and down from the central bank's daily reference rate since April 2012, it has most of the time hugged the stronger end of the band on expectations Beijing will allow further appreciation.
A near 3 percent rise against the dollar in 2013 with little swings in prices even as its emerging market peers wilted in the face of a resurgent dollar enhanced its appeal as an investment currency, fuelling a sharp growth in long yuan positions in the derivatives and the offshore market in the Chinese currency.
In opening trades on Wednesday, the yuan fell to an intraday low of 6.1351 per dollar, the lowest level in seven months, even though the daily fixing was a shade below Tuesday's 6.1192. While it recovered ground somewhat to trade at 6.1276 per dollar by midday, it has already fallen by almost 1 percent in a week, a surprisingly large move by the yuan's usual staid trading patterns.
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