The Chinese yuan held near one-week lows against the US dollar on Thursday as traders consolidated positions after a recent spell of weakness triggered by the central bank's lower fixing. A two-month rangebound trading spell in the Chinese currency was broken earlier this month when the People's Bank of China pegged the yuan higher against the greenback in a series of stronger fixes sparking speculation that authorities were preparing for a new phase of yuan strength.
By midday on Thursday, the Chinese yuan was trading at 6.0937 per dollar virtually unchanged from the previous close. It briefly hit a record 6.0802 per dollar last Friday but has weakened by nearly a quarter of a percent since then.
That came to an end last week when the People's Bank of China started fixing the yuan weaker against the dollar causing some market players to trim their bullish yuan bets.
Expectations of further yuan gains remain especially in the onshore forwards market and the offshore yuan market where traders are looking to buy the Chinese currency at any sign of weakness.
"We still continue to see large corporate flows in the market and the central bank fixing the yuan weaker is a sign they may be willing to take more steps to ensure the yuan doesn't rise very quickly," said a currency trader at a European bank in Hong Kong.
Worries of more steps from Beijing have grown after the US authorities reprimanded Germany and stayed mum about China's exchange rate in a semi-annual report to Congress on international economic policies.
For years, the semi-annual report has been an occasion for the US government to publicly criticise China's foreign exchange practices, but this time Germany appeared to eclipse the Asian nation in terms of prominence.
The yuan has gained more than 2 percent against the dollar this year with a substantial chunk of those gains coming in the last two weeks as it scaled a series of record highs against the dollar.