China's central bank guided the yuan to a post-revaluation high against the dollar on Thursday, after a US Federal Reserve policy statement led markets to trim expectations for an early US interest rate hike.
But the Fed's statement, which voiced greater concern about inflation while predicting price pressures would moderate this year, did not end speculation about the possibility of a major dollar rally in global markets later this year, traders said.
"The Fed's statement was another reason for the (Chinese) central bank to allow the yuan to continue to rise today," said a dealer at a US bank in Shanghai.
"But the yuan has risen so much this month, so we expect it to consolidate slightly lower in the next one or two weeks, in particular because many in the market still believe the Americans will eventually raise interest rates decisively."
Offshore, dollar/yuan volatilities fell sharply as trading thinned, with investors taking the view that the medium-term dollar trend has become more or less established, as has China's currency policy, traders said. One-year yuan/dollar volatilities plunged to 6.64 percent bid in late trade on Thursday from 7.3 percent at the close on Wednesday, far below a post-revaluation intraday peak of 9.5 percent hit on June 19. In the onshore markets, the People's Bank of China set a stronger daily yuan spot mid-point against the dollar of 6.8634, the highest reference rate since Beijing revalued the yuan in July 2005. That was up from Wednesday's 6.8684.
This pushed the yuan to a post-revaluation traded high of 6.8612 against the dollar, although it pulled back to close at 6.8657, down marginally from Wednesday's 6.8653 finish, amid market expectations of a near-term consolidation.