The yuan weakened against the dollar in both onshore and offshore markets on Wednesday, after the central bank set a softer midpoint in the wake of dollar strength. Also on Wednesday, sources told Reuters that the Chinese central bank has taken latest step to curb the yuan's depreciation by temporarily suspended some foreign exchange businesses of several foreign banks until the end of March. In early trade, the offshore yuan weakened to 6.5965 in early trade, the lowest since late September in 2011.
By midday, the offshore yuan was trading at 6.5930 per dollar, 1,027 pips or 1.56 percent weaker than the onshore spot. Traders have said they expect intervention from the central bank if the spread between the two markets widens to 1,000 pips. But they did not detect any PBOC intervention on Wednesday.
Unless the PBOC intervenes, traders are wary of more depreciation in the offshore market, as well as the widening spread between the two markets - and it appears that Beijing is concerned too. The PBOC action involving several foreign banks is seen to stabilise the yuan's rate and cushion capital outflows due to the yuan's recent depreciation. On Wednesday, the onshore yuan weakened after the central bank set a fresh 4-1/2-year low guidance rate in line with the strengthening dollar. The central bank has set the midpoint, the official guidance rate, more in line with the trading levels since reforms in August, but it has still used state-owned banks to trade on its behalf to influence the yuan's value in the market.
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