Yuan eases against dollar

China's yuan eased against the dollar on Monday, giving up some of its sharp gains in the previous session, but traders said they did not expect any major moves in the currency while the country's annual parliament meeting was in session. Top officials sought to reassure investors about China's currency policy as the parliamentary session opened at the weekend, but traders remained cautious ahead of the release of February forex reserve data which could give clues on whether the central bank is succeeding in staunching capital outflows.
"Trading was active this morning with robust dollar demand, propelled by bargain-hunting after last Friday's yuan rise," said a trader at an European bank. "But overall the market remains confident that there won't be any big depreciation when the annual parliament meeting is in session." The meeting runs until March 12. The People's Bank of China set the midpoint rate at 6.5113 per dollar prior to market open, the firmest fixing in two months, and 0.26 percent stronger than the previous fix 6.5284.
The strong midpoint fixing by the central bank reflected the dollar's global weakness with the dollar index against a basket of currencies mainly euro, which dropped nearly 1 percent late last week. In the spot market, the yuan opened at 6.5102 per dollar and was changing hands at 6.5149 at midday, 0.13 percent softer than the previous close. It rose an unusually hefty 0.4 percent on Friday, partly due to suspected central bank intervention to maintain the currency's stability during the parliament session. The latest data issued by the exchange, China Foreign Exchange Trade System, showed that the index for the yuan's value based on the market's trade-weighted basket stood at 99.16, indicating the yuan depreciated by 0.13 percent last week.
The offshore yuan was trading 0.12 percent firmer than the onshore spot at 6.507 per dollar. The onshore yuan strengthened 0.2 percent against the euro by midday at 7.1566. It also firmed 0.2 percent against the Japanese yen, hovering at 5.7316 to 100 yen. The central bank's intervention to check the yuan's recent depreciation has seen China's foreign exchange reserves drop sharply, but PBOC vice-governor Yi Gang said on Monday that reserves remained stable.
China's forex reserves declined by $99.5 billion in January to $3.23 trillion after a record fall the previous month, with a Reuters poll showing it is likely to fell for a fourth straight month in February, easing to $3.2 trillion. The data could be released on Monday. Addressing the issue of the slowdown of China's economy, which has been the main factor behind the yuan depreciation expectations, the country's top economic planner said on Sunday that the economy is not headed for a hard landing.