China's yuan weakened marginally on Wednesday amid concerns that deflationary risks are growing, increasing the need for more policy easing. The People's Bank of China set the midpoint rate at 6.1315 per dollar prior to the market open, weaker than the previous fix of 6.1295. The yuan has been weakening against the dollar since late last year, mostly reflecting the dollar's massive rally as the US economy has improved, fuelling expectations of a Federal Reserve rate rise this year.
A raft of weak Chinese economic data have also raised expectations that the People's Bank of China might intervene to guide the yuan lower. Consumer inflation was weaker than expected in January and factory deflation worsened, while the country's trade performance slumped last month. Spot yuan opened at 6.2450 per dollar and was changing hands at 6.2418 at midday, 2 pips weaker than the previous close and 1.80 percent away from the midpoint.