Yuan drops to low in more than a week

On Wednesday, the yuan slipped against the US dollar to its lowest in more than a week, breaking through key support. Pressure on him was exerted by increased demand for the US currency from companies.

Before the start of trading, the People's Bank of China set the median rate of the dollar against the yuan at 7.1486 against 7.1453 on Tuesday. According to traders and analysts, they expected a stronger dollar.

"The central bank is stubbornly setting a lower dollar fix against the yuan than markets are expecting to keep the yuan from depreciating," said Lin Li, an analyst at MUFG. This will likely continue to support the yuan, she said, but other factors, including the spread between US and Chinese yields, will continue to work in the opposite direction.

A widening gap between yields in China and other key economies, especially the US, as well as signs of weakening in the Chinese economy, are putting pressure on the yuan, which has lost more than 4% since the beginning of the year, becoming one of the weakest Asian currencies.

On the continental market, the dollar/yuan pair rose to 7.2103, and at the time of writing it was trading at 7.2071. The dollar/offshore yuan also broke through the key 7.2 level and is trading at 7.2152 at the time of writing.

Traders said corporate demand for the dollar was very strong on Wednesday, putting pressure on the yuan. Demand is driven by the payment of dividends by foreign-listed Chinese companies.

"Probably, the pace of the yuan's decline will slow down," said a trader at a foreign bank, noting that market participants are afraid of state-owned banks selling the dollar.

The dollar's sharp decline has meanwhile halted, with the dollar index at the time of writing rising to 100.011 from Tuesday's close of 99.941.