Beijing: China weakened the yuan’s daily reference rate to the lowest since November in a sign policymakers are loosening their grip on the currency.

The People’s Bank of China set the fixing at 7.1192 per US dollar. The move comes as the US dollar inches closer to this year’s peak, with traders betting on higher-for-longer interest rates in the United States.

The offshore yuan fell to its weakest point this year after the fixing, down 0.1% to around 7.2850 per US dollar. The move came as Chinese banks maintained their benchmark lending rate for a 10th straight month, as pressure on the yuan restricts policymakers’ space for easing.

“The creep higher in the fixing continues, as it approaches the next psychological big-figure level of 7.12,” said Khoon Goh, head of Asia research at ANZ Group Holdings Ltd. “The top of the trading band now greenlights onshore spot to push past 7.26, an indication that the authorities are accommodating a bit more yuan weakness to relieve some depreciation pressure.”

Goh added he didn’t expect authorities to allow large depreciation moves.

Any delay to US Federal Reserve rate cuts would likely add pressure on the yuan as China’s wide interest-rate gap with the United States favours the US dollar. Worsening capital outflows, seen in a surge in local firms’ purchase of foreign exchange and exporters’ hoarding of the US dollar, have also added to the yuan’s woes.

China has maintained a strong hold on the yuan using its daily reference rate for most of the year.

However, it has been gradually weakening its so-called currency fixing amid calls from former officials for relaxing its control over the yuan in order to open the room for more monetary policies.

 - Bloomberg