[SHANGHAI] China's yuan firmed on Tuesday as banks' clients covered short positions as the dollar eased, but traders said downward pressure on the currency remains.
"The yuan's depreciation lost steam after yesterday's weakening as the dollar's global performance disappointed some yuan shorters," said a dealer at a European bank in Shanghai.
"But such short-covering doesn't point to a yuan uptrend; instead, overall sentiment remains favorable to yuan depreciation."
The yuan has lost 2.3 per cent so far this year amid a slowdown of China's economic growth and the prospect of a stronger dollar, which is being supported by a gradual recovery in the US economy and expectations of higher interest rates at some point.
The People's Bank of China set the midpoint rate at 6.6586 per US dollar prior to the market open, firmer than the previous fix of 6.6652.
In the spot market, the yuan opened at 6.6509 per US dollar and was changing hands at 6.6471 at midday, 54 pips away from the last close and 0.17 per cent away from the midpoint.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.73, weaker than the previous day's 94.79.
The offshore yuan was trading 0.14 per cent away from the onshore spot at 6.6563 per US dollar.