China's yuan edged up against the dollar on Monday, buoyed by a firmer midpoint fixing and after the foreign exchange regulator soothed worries about the Chinese currency's depreciation. Prior to market open, the People's Bank of China (PBOC) set the midpoint rate higher for the second day at 6.5626 per dollar, 0.02 percent firmer than the previous fix 6.5636.
The move was an apparent reversal of the midpoint's recent weakening trend which included the biggest one-day drop in the guidance rate in five months on January 7. The spot market opened at 6.5950 per dollar and was changing hands at 6.5827 at midday, 0.17 percent firmer than the previous close. Traders reported that there was a bout of dollar sales by some state-owned banks in early trade, pushing the yuan to 6.5755, but the sales eased shortly.
"The spot market was relatively stable now, though the dollar-bid tone still dominated the market," said a dealer at a foreign bank in Shanghai. On Monday, onshore yuan barely moved against the euro at 7.1874. It weakened 0.8 percent against the Japanese yen, to 5.6123 to 100 yen. The offshore yuan was trading 1.35 percent weaker than the onshore spot at 6.6727 per dollar.
Beijing launched an index on the yuan's exchange rate weighted against a basket of trade-related currencies last month, a move that will eventually loosen the currency's link to the greenback and plays down the impact of the yuan's depreciation against the dollar. The weekly index dropped below 100 to 99.96 for the first time last Friday since it was launched on December 11, 2015, indicating that the yuan was not only depreciating against the dollar but also to the basket last week. "Following the wild session in the first week of this year, it appears to us that China would hold back the pace of CNY depreciation," Zhou Hao, an economist at Commerzbank in Singapore, wrote in a research note.
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