CHINA’S central bank yesterday set the daily value of the yuan currency at its weakest level against the U.S. dollar in more than five years, after hawkish comments from Federal Reserve Chairwoman Janet Yellen on Friday boosted the strength of the U.S. currency.

The People’s Bank of China put the yuan, also known at the renminbi, at 6.5784 to US$1, down 0.45 percent from its fix Friday, according to data from the China Foreign Exchange Trade System. The level was the lowest level since February 2011.

China only allows the yuan to rise or fall 2 percent on either side of the daily fix onshore.

“The yuan will depreciate gradually,” said Song Yu, China economist for Goldman Sachs/Gao Hua Securities. “The main driver for the decline would be a stronger dollar on the back of the expectation that the Fed will raise interest rates. We are seeing two rate hikes this year, one in June, July or September, and another one in December.”

Song expects the yuan to trade at 6.8 a dollar in a year’s time, a 3.2 percent decline from 6.5812 early yesterday.

Yellen, speaking at Harvard University, said a U.S. rate hike “probably” would be justified “in the coming months” if economic data continued to strengthen.

The yuan fix has seesawed over the past week in response to the dollar’s intermittent strength, with a previous five-year low set Wednesday.

In theory, the fix serves as a reference point for the yuan by reflecting market developments. But currency traders said the yuan has been moving of its own accord even though the fix has been weakening recently.

After the fix yesterday, the yuan held steady in the onshore market, strengthening 0.04 percent to 6.5633 against the dollar. In Hong Kong, where the currency trades freely around the clock, the currency fell 0.2 percent to 6.5868.

The onshore yuan has weakened 6 percent against the dollar since August, when a shift to a market-determined exchange rate and a devaluation prompted months of volatility in the yuan and worries of capital flight from China. Before then, the rate was entirely determined by the central bank.

Over the past week, weaker fixes have been accompanied by a stronger yuan, analysts said.

Michael Every, head of financial markets research for Asia-Pacific at Rabobank, said that recent buying of the yuan on the mainland has kept its value stable despite a series of weaker fixes. (SD-Agencies)