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Offshore yuan pulls back from all-time low

London

THE yuan pulled back from an all-time low in offshore trade on Tuesday after Beijing appeared to take steps to prevent it weakening further, following a sharp drop that prompted the US government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as shrinking yuan liquidity and curtailing short selling of the currency.

The People's Bank of China (PBOC) also fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

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Analysts said these moves suggested Chinese authorities may not be ready yet to let the yuan, also known as the renminbi, weaken much further.

"The decision of the PBOC to set the CNY fix stronger is the key catalyst driving financial market sentiment today and countered the decision in Washington to formally cite China as a currency manipulator," said Derek Halpenny, head of global markets research at MUFG.

The yuan was last up by 0.4 per cent in offshore trade at 7.0675 against the dollar after plunging to 7.14 late on Monday, its lowest level since offshore trading began in 2010.

In onshore trade, the yuan opened at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an "indication they are ready for the renminbi weakening phase," said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese currency shifted investors' focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.4 per cent at 106.40 to the dollar, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.1 per cent weaker, bouncing off a 25-month high it reached on Monday.

The euro was flat at US$1.1198 after jumping to an 18-day high against the dollar overnight as the spread between US and German 10-year government bond yields shrunk to its lowest in 1 1/2 years. The index which tracks the dollar against a basket of six major currencies was also flat at 97.51.

The pound was up 0.5 per cent at US$1.2199, but not too far from the 31-month low it reached last week. Against the euro, sterling hit a new 23-month low on Tuesday of 92.49, but was last up by 0.5 per cent at 91.79 pence. REUTERS