THE yuan firmed yesterday in its first day of trading after the long Lunar New Year holiday, buoyed by the U.S. dollar’s recent drop and a stronger central bank midpoint.

    The People’s Bank of China set the midpoint rate at 6.5118 per dollar prior to market open, the highest fixing in over a month, or 0.3 percent firmer than the previous fix 6.5314.

    The spot market opened at 6.5300 per U.S. dollar and hit an intraday high of 6.4988 in late morning trade.

    It trimmed some gains and was changing hands at 6.5020 at midday, strengthening 1.1 percent from the previous close.

    In an interview carried in the Chinese financial magazine Caixin over the weekend, central bank governor Zhou Xiaochuan said yuan exchange reform would help the market be more flexible in dealing with speculative forces betting on yuan depreciation.

    Zhou commented there was no basis for the yuan to keep falling, and China would keep it stable versus a basket of currencies while allowing greater volatility against the U.S. dollar.

    “The message from the governor really soothed the market sentiment,” said a trader at a local commercial bank.

    “We expect the yuan’s value to stay in line with central bank’s fixing in the near future,” he said, adding that there was a bout of trading around 6.5300 early but the yuan then trended stronger due to continuous dollar sales.

    But the latest data showed pressure on the economy persists.

    China’s exports fell 11.2 percent in January from a year earlier and imports tumbled 18.8 percent, both far worse than expected, putting pressure on policymakers to take further action to put a floor under slowing activity.

    A record trade surplus of US$63.3 billion only underscored lingering weakness in demand at home and abroad.

    “Today’s numbers hint that Chinese currency is still under pressure to weaken,” said Zhou Hao, a senior EM economist at Commerzbank AG.

    “That said, recent strength in yuan is largely due to central bank’s effort to dampen the speculative positions.”

    The offshore yuan was trading 0.04 percent weaker than the onshore spot at 6.5045 per U.S. dollar.

    China has no incentive to depreciate the currency to boost net exports and there’s no direct link between the nation’s gross domestic product and its exchange rate, according to Zhou.(SD-Agencies)