China's yuan plunged versus the dollar on Wednesday, threatening to post its biggest daily drop since it was revalued in July 2005, but it closed well off its low as traders said they saw no change in Chinese forex policy.
A half-hour slide in the late afternoon brought the yuan to a low of 7.2270, down 0.60 percent from its previous close of 7.1840 on Tuesday last week, just before week-long Lunar New holidays from February 6 through 12. The drop was much bigger than the record post-revaluation daily fall of 0.29 percent, which was seen last December.
But the yuan rebounded in the final 20 minutes of trade on Wednesday to close down 0.22 percent at 7.2000, still one of the ten biggest daily falls since the revaluation. Traders said they believed the slide was due to thin market conditions after the long holiday, and not to any change in China's policy of accelerating yuan appreciation this year to fight inflation.
Half a dozen traders at Chinese banks in Shanghai and Beijing attributed the fall to the fact that many dealers and corporate clients had not yet returned from holidays. "There are hardly any export settlements" because Chinese exporters have not yet returned to sell dollars, said a senior dealer at a major Chinese state-owned bank in Beijing.