The yuan finished slightly firmer against the dollar on Wednesday but its rise lagged far behind the dollar's fall against a basket of major currencies as global investors expected the Federal Reserve to dampen expectations for higher interest rates.
Policy makers at the Fed began their two-day meeting on Tuesday and many expect they will want to play down expectations of higher interest rates that have been built in by the market, for fear these will choke economic recovery. Spot yuan closed at 6.8328 against the dollar, up slightly from Tuesday's close of 6.8348.
Before trade began, the Chinese central bank fixed the yuan's daily mid-point at a three-week high of 6.8316 versus the dollar but only up marginally from Tuesday's 6.8339. "The mid-point reflected but lagged the global dollar fall, indicating the central bank still wants to keep the yuan stable for now," said a dealer at a European bank in Shanghai. Beijing's stable yuan policy reflects the government's caution over China's economic recovery.
Fan Caiyue, a government researcher said in a commentary published on Wednesday that China's annual economic growth would recover to about 6.5 percent in the first half, up from 6.1 percent in the first three months of the year.
But Fan, who works at the economic research institute under China's powerful economic planner, said the authorities should not change their policies for now. "We cannot be overly optimistic about the current recovery. Whether the Chinese economy truly picks itself up from the floor and embarks on a new round of growth will depend on the recovery of the global economy and tackling some deep domestic issues that hobble growth," he said.
Offshore one-year dollar/yuan non-deliverable forwards (NDFs) fell slightly to 6.7620 late on Wednesday from Tuesday's close of 6.7660 in response to the global dollar fall. Twelve-month yuan appreciation implied in the NDFs, which move inversely with the NDFs' levels, rose to 1.03 percent from the day's mid-point, compared with 1.0 percent implied on Tuesday.