SHANGHAI (REUTERS) - The yuan fell slightly against the dollar on Thursday, despite another record-high central bank midpoint, providing further evidence that the upward momentum in the Chinese currency has slowed since late May.
The yuan's fall came despite the dollar falling to its lowest level against the yen in ten weeks as investors cautiously pared bullish bets on the greenback amid uncertainty about whether the US Federal Reserve will pare back its stimulus programme.
Spot yuan was trading at 6.1403 per dollar at midday, weaker than the 6.1335 rate at Friday's close. The market was closed from Monday to Wednesday for the Chinese Dragon Boat Festival holiday.
Before Thursday's trade began, the People's Bank of China (PBOC) set the yuan's midpoint at 6.1612, the strongest level since the country set up the domestic foreign exchange market in 1994. The yuan can rise or fall by 1 per cent in a day from the PBOC's base rate.
"There have been fewer dollar sales since late May as the market believes the peak for yuan appreciation is over," said a trader at a Chinese commercial bank in Shanghai.
"But the government appears to still want the currency to rise slightly for now as it moves towards making the yuan fully convertible."
The central bank has used the midpoint to guide the yuan to multiple record highs since early April as the government appears to be gradually moving to create conditions for a more flexible exchange-rate regime.
By letting the yuan rise, the PBOC hopes to find the range where supply and demand for dollars is balanced, traders said.
The divergence of the spot yuan from the midpoint has steadily narrowed since late May. On Thursday, the yuan was only 0.34 per cent stronger than the midpoint, compared with a gap of more than 0.9 per cent that persisted on most days from the fourth quarter of 2012 until last week.