Yuan ends weaker as dollar steadies

Updated: 2007-08-08 09:05

China's yuan ended weaker against the dollar on Tuesday after the central bank set a lower mid-point for its exchange rate against the U.S. currency, which steadied after rallying on global markets.

The yuan, or renminbi, closed at 7.5703 to the dollar, down from Monday's close at 7.5610, after hitting an intraday low of 7.5750 and a high of 7.5644.

Before the market opened on Tuesday, the People's Bank of China, the central bank, fixed its daily mid-point at 7.5690 to the dollar, weaker than Monday's 7.5598.

The dollar was locked in narrow ranges against other major currencies on Tuesday as investors awaited the results of a Federal Reserve policy meeting, when they will listen for comments on risks to growth from widening U.S. credit market problems.

Dealers said more volatility was likely to emerge in the yuan rate in the near term, partly due to persistent international pressure for faster yuan appreciation -- and despite Beijing's reluctance to heed it.

One-year offshore non-deliverable forwards quoted the yuan at 7.1470/7.1520 at 0946 GMT, indicating appreciation of 5.51 to 5.58 percent in a year's time from Tuesday's mid-point, down from 5.73 to 5.79 percent late on Monday.

Dealers have ruled out rapid appreciation in the yuan in the short term while the general trend of a gradual rise should remain intact, partly reflecting widespread expectations that China's central bank will raise interest rates one more time this year in the fourth quarter to avoid economic overheating.

The spread between the indicated yield of China's benchmark central bank one-year bills and the one-year dollar LIBOR rate dropped to 186 basis points on Monday -- its lowest level since June 8, 2005.

Beijing has tried to keep yuan interest rates around 3 percentage points above U.S. rates since the landmark yuan revaluation in July 2005, but it seems to have been relaxing its stance this year as it confronts excess liquidity in its monetary system.

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