The yuan hit a post-revaluation high against the dollar on Friday, but in a pattern similar to Thursday's trade, closed lower after pulling back in the last few minutes of trade. The yuan traded as high as 7.9970 to the dollar on Friday morning.
Its highest level since Beijing revalued the currency by 2.1 percent to 8.11 and freed it from a dollar peg in July last year. The previous high was 7.9972 on May 15. But it closed at 8.0020, down from Thursday's 8.0015 finish, as banks sold the yuan very late in the session. Some dealers cited a regulatory requirement to balance trade for the day, but others suggested the central bank might be indirectly buying dollars to limit the yuan's rise.
"We expect some see-saw battles around 8.00 in coming days," said a Shanghai dealer at a foreign bank. "The central bank will still set the pace of the yuan's rise. It is unwilling to see a flood of speculative funds betting on a quick appreciation."
Data in recent days, including a record May trade surplus of $13 billion and surging money supply, has shown China's efforts to cool the economy are having limited success.
This week the central bank drained a net 50 billion yuan ($6.25 billion) through an unusual operation in which it obliged certain banks to buy bills at a yield below prevailing market yields, penalising them. It warned it was ready to conduct more such operations.
Earlier on Friday, the central set the mid-point of the yuan's exchange rate at a post-revaluation high of 7.9976, compared to the previous record of 7.9982 on May 15. Since the central bank is believed to use the mid-point to signal its intentions toward the market, Friday's level was viewed as an important policy decision.