Chinese yuan slips again as depreciation pressure remains

A clerk counts money for a client at an Agricultural Bank of China branch in Hainan province. [Photo/IC]

BEIJING - The Chinese yuan slipped again on Wednesday after ending its 12-day losing streak Tuesday.

The central parity rate of the currency weakened 125 basis points to 6.8904 against the US dollar, according to the China Foreign Exchange Trading System.

Analysts attributed the decline to lingering depreciation pressure caused by rising domestic demand for foreign exchange and softened market sentiment.

Chinese citizens usually increase purchases of foreign currencies, especially US dollars, at the end of a year as they plan for overseas travels during the upcoming Spring Festival holiday.

A strengthening dollar backed by heightened expectations for a US interest rate rise will also likely lead to the yuan's continued weakness and mild fluctuations in the short term.

"But there is no need for excessive concerns as further depreciation may prompt the central bank to take measures to stabilize the market," said Huang Wentao, an analyst with stock brokerage China Securities.

The yuan's overall stability is still a policy priority for China's policymakers who have reiterated that there is no basis for persistent depreciation given steady economic growth, a trade surplus and huge foreign exchange reserves.

In China's spot foreign exchange market, the yuan is allowed to rise or fall by two percent from the central parity rate each trading day.

The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.