THE yuan hit a 10-day high against the U.S. dollar yesterday, following a firmer fixing by the central bank and as immediate worries about global trade receded, taking some of the shine off the safe-haven greenback.

The sharp turnaround in the Chinese currency came after it booked 10 straight weeks of losses, the longest weekly losing streak since the exchange rate was unified in 1994, shedding nearly 9 percent to the dollar since the end of March.

Some market participants believe a test of the psychologically critical 7 per dollar level is only a matter of time, although regulators may be keen to send a signal about their low tolerance for aggressive selling ahead of this.

Prior to market opening yesterday, the People’s Bank of China set the midpoint rate at 6.8718 per dollar, 176 pips or 0.26 percent firmer than the previous fix 6.8894.

Yesterday’s official midpoint largely matched market forecasts to reflect the broad weakness in the greenback, unlike the higher-than-expected fixings seen last week.

The dollar fell against a basket of six other major currencies, retreating from a 13-month high hit last week as investor demand for the safe-haven currency receded on optimism over an apparent easing in U.S.-China trade tensions.

In the spot market, the onshore yuan opened at 6.8595 per dollar and surged to a high of 6.8450 at one point, the strongest level since Aug. 10.

The offshore yuan, which has strengthened more than 0.4 percent since Thursday’s close, gave back some of its gains yesterday as tightness in yuan liquidity offshore faded.

Regulators Thursday barred banks from using some interbank accounts to deposit or lend yuan offshore through free trade zone programs, two sources with direct knowledge of the matter said. The changes made it more expensive to short the currency.

Li Liuyang, senior foreign exchange analyst at China Merchants Bank in Shanghai, said the move was a counter-cyclical regulatory measure and designed to show China’s “determination to stabilize the exchange rate” before it hit the sensitive 7 per dollar level.

Official data showed China’s commercial banks sold a net US$9.4 billion in foreign exchange in July, up from a net purchase of US$2.0 billion in June. However, analysts said foreign exchange outflows last month generally remained moderate. (SD-Agencies)