The Chinese yuan hit the limit of its recently widened trading band for the first time on Friday as the spot market shook off attempts by the central bank to push the yuan upward. The People's Bank of China (PBOC) set the midpoint at 6.3112 per dollar early on Friday, continuing to keep the yuan firm against the US currency as the dollar index kept up its gradual slide away from a peak hit on July 12.
Spot markets stayed largely flat but weakened slightly, causing the yuan to run into the 1 percent limit from which it can trade away from the midpoint in afternoon trading. It weakened to change hands at 6.3743 per dollar a few minutes before the market close, striking the edge of the band, then rebounded to close at 6.3735, identical to its opening price. Spot yuan has not traded over 54 points on any single day this week. The PBOC doubled the yuan's daily allowable trading band in mid-April to 1.0 percent from 0.5 percent.
PBOC data issued on July 12 showed that the central bank and Chinese financial institutions bought a net 49.1 billion yuan ($7.7 billion) worth of foreign exchange in June, up from 23.4 billion yuan in May but down sharply from 277.3 billion in June last year.
Average monthly net forex purchases in the first six months of 2012 were just 50.4 billion yuan, down significantly from an average of 348.1 billion yuan a month in the first half of 2011. The yuan had a quiet week offshore. The one-year non-deliverable forward strengthened slightly this week but continued to trade at a discount to the spot price at 6.4150 by the market close.