China's yuan rebounded against the dollar on Tuesday, clawing back losses from the previous session as market participants grew wary of regulators' tolerance for recent selling after the currency breached a key level. The Chinese currency has retreated more than 1,900 pips from a 21-month peak hit on August 8. While authorities were likely to have been uncomfortable with rapid gains in the preceding months, they are also likely to have been uncomfortable with more recent losses.
Market participants also expect authorities will want to keep the yuan relatively stable in the run-up to a key Communist Party meeting starting on October 18. Prior to market opening on Tuesday, the People's Bank of China lowered its official yuan midpoint weaker than the psychologically important 6.6 per dollar level for the first time in nearly a month. Tuesday's official guidance came in at 6.6076 per dollar, 131 pips or 0.2 percent weaker than the previous fix of 6.5945 on Monday.
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