The yuan closed down against the dollar on Tuesday and scored its biggest monthly loss since its landmark July 2005 revaluation as the People's Bank of China set a surprisingly low mid-point, signalling its determination to halt the yuan's appreciation after its depegging in mid-June.
Dealers said that worries over a double dip recession in the global economy after weak data from particularly the United States and Japan, and recently tense Sino-US political relations, appear to have contributed to China's decision to stop yuan appreciation.
Most investors still believed the bottom line was that China would not allow the yuan to fall below 6.8262 against the dollar - the level before the PBOC announced a depegging of the two currencies on June 19, traders said. The yuan lost 0.48 percent against the dollar for August, its biggest monthly loss since Beijing revalued it in July 2005.
Offshore dollar/yuan forwards rose sharply on Tuesday to imply less yuan appreciation, reflecting the PBOC's weaker-than-expected mid-point. Benchmark one-year dollar/yuan non-deliverable forwards (NDFs) were bid at 6.7160 late on Tuesday from 6.7000 at Monday's close, with their implied 12-month yuan appreciation falling to 1.41 percent from 1.53 percent.