The yuan closed lower versus the dollar on Monday after the People's Bank of China set a slightly weaker mid-point to reflect but lag a rise in the US dollar index, which has jumped 2.5 percent so far this year. Traders said the yuan's slight weakening would not have a major impact on market expectations that the currency would rise steadily in 2011 as China fights against imported inflation and tries to ward off US pressure for the yuan to appreciate.
China is the world's fastest growing market for staple commodities. The benchmark Reuters Jefferies CRB index, which covers 19 mostly US-traded commodities, has jumped around 30 percent since June last year. Meanwhile, a jump in China's domestic food prices has boosted inflation to a 28-month high of 5.1 percent in November. December consumer price data will be announced later this month.
China posted on Monday a smaller-than-expected trade surplus in December as imports surged 25.6 percent while exports grew at a slower pace of 17.9 percent. Spot yuan closed at 6.6377 versus the dollar, down from Friday's close of 6.6280. It has now risen 2.84 percent since its mid-June depegging.
Before trade began, the PBOC set the yuan's mid-point versus the dollar at 6.6349, marginally weaker than Friday's 6.6341. The yuan could move 0.5 percent in either direction from the central bank's fixing in a trading day. Several dealers expected the yuan to rise decisively above 6.60 against the dollar - a level it once visited late in 2011 - before the end of a state visit by Chinese President Hu Jintao to the United States on January 18-21. Some part of the market is jittery over signs of slow PBOC moves to allow the yuan to appreciate as it has kept the currency firmly weaker than 6.60 against the dollar this year.