Yuan hits lowest point in 16 months

The yuan extended its downtrend against the dollar yesterday to touch a 16-month low, despite the central bank fixing its trading point at a higher level.

The currency fell to as low as 6.2466 to the US dollar, its weakest level since December 2012, according to Dow Jones Newswires. But it closed at 6.2373, only slightly weaker than Tuesday's close of 6.2370, according to data from the China Foreign Exchange Trade System.

The People's Bank of China had set the mid-point for trading at 6.1599, compared with 6.1610 on Tuesday. The PBOC keeps a tight grip on the currency but allows it to move up or down 2 per cent on either side of a daily-set mid-point.

The yuan has fallen repeatedly in recent months, with many dealers believing the depreciation is a deliberate move by the central bank to target speculative funds betting on continued rises. But traders have also blamed the slowing economy as a crucial factor.

A Shanghai-based local bank trader told Dow Jones Newswires: "This round of yuan falls are mainly driven by investors spontaneously purchasing dollars instead of the central bank's intervention, so we may see it slowly weakening towards 6.26 in the coming weeks."

Policymakers have pledged to move gradually towards full convertibility of the yuan, and bringing with it the uncontrolled movement of funds in and out of the mainland.