SHANGHAI: China’s yuan fell to a fresh seven-month low against the dollar on Thursday, after the central bank set much weaker official guidance, while the Chinese currency hit the weaker end of its trading band in cash settlement transactions.

Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1192 per US dollar. That was the weakest since November 2023 and the largest one-day move since April 16.

The PBOC has to “passively” set the yuan midpoint weaker to avoid the tomorrow-next trades from hitting the lower side of the trading band at market opening, said Xing Zhaopeng, senior China strategist at ANZ.

The yuan hit the weak end of the band in cash settlement transactions on Thursday, traders said.

The spot yuan dropped to 7.2605 in early trade, the weakest since November 2023 and only 11 pips from the lower end of the daily trading band. It was changing hands at 7.2602 by midday, 30 pips weaker than the previous late session close and 1.98% away from the midpoint.