SHANGHAI: China’s yuan eased against the dollar on Friday following weaker guidance from the central bank, which market participants read as indication authorities may be willing to tolerate falls in the currency.

Investors did not take much cheer from a survey that showed an unexpected pickup in Chinese factory activity in November, with the offshore yuan making brief gains after the report before shedding them.

“Any reaction in the USD/CNH was short-lived as markets may still be uncertain about a bottoming out or stabilization in China’s economy,” Maybank analysts said in a note.

Prior to the market’s opening, the People’s Bank of China set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1104 per U.S. dollar, 86 pips weaker than the previous fix 7.1018. That was the largest daily weakening by percentage terms in more than two months.

With a weaker dollar and less pressure on the yuan, authorities may be more open to allowing the Chinese currency tomove less rigidly and be guided more by market forces, analysts at Citi said in a note.

Yuan on track for best month in a year

“There has been a lot of client interest as to why now, but there are no obvious catalysts. In the past, changes in fixing patterns have often been abrupt,” the analysts said.

The spot yuan opened at 7.1340 per dollar and was changing hands at 7.1388 at midday, 38 pips weaker than the previous late session close.

The global dollar index fell to 103.359 from the previous close of 103.497.

The offshore yuan was trading 67 pips weaker than the onshore spot at 7.1455 per dollar.