Chinese yuan hits over two-week low against dollar as PBOC signals caution on appreciation

China's yuan weakened to a more than two-week low against the US dollar on Wednesday after the central bank set a weaker-than-expected daily guidance rate, while investors continued to assess its move to curb the currency's sustained appreciation.

The onshore yuan fell to 6.6832 per dollar in early trading, its weakest level since October 19, before recovering slightly to 6.6794 as of 0303 GMT. The offshore yuan also declined, trading at 6.6782 per dollar, down around 0.13% during Asian trade.

The weakness followed the People's Bank of China's (PBOC) decision on Tuesday to raise the foreign exchange reserve requirement ratio by 2 percentage points to 6% from 4%. The move is aimed at limiting the supply of foreign currency in the domestic market and slowing the yuan's appreciation.


The decision marks one of Beijing's strongest attempts yet to rein in the currency's rally, which has seen it appreciate around 5% against the dollar so far this year.

The PBOC set its daily midpoint rate at 6.7180 per dollar on Wednesday, the weakest level since October 23. The fixing was 369 pips weaker than the Reuters estimate of 6.6811, signalling the central bank's preference for a more gradual pace of currency appreciation.

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The onshore yuan is permitted to move within a 2% band on either side of the official midpoint rate each trading day.

Reuters reported that although the PBOC has gradually strengthened its daily yuan guidance this year, its fixings have remained weaker than market expectations, suggesting policymakers are attempting to manage the pace of the currency's gains.

Meanwhile, the CFETS yuan basket index, which measures the currency against a basket of trading partners' currencies, declined to 103.75 based on Wednesday's official guidance, according to Reuters calculations using official data. The index had touched a 52-month high on Tuesday but remains up around 5.9% so far this year.

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Separately, investors are closely tracking the outcome of the US midterm elections and their potential implications for global currency markets. Market participants have been positioning for a strong Democratic showing, as the results could influence expectations around US fiscal policy, political uncertainty and the dollar's direction.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)