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Staff of Reuters Read for 2 minutes (Adds details, comments and background) (Reuters) – SHANGHAI, July 14 – On Wednesday morning, China’s yuan weakened versus a stronger dollar, as many investors were wary after the currency’s value against its key trade partners soared to a more than five-year high. The People’s Bank of China (PBOC) fixed the midpoint at 6.4806 yuan per dollar before the market started, down 49 pips from the previous fix of 6.4757. It was at its lowest level since June 24. According to Reuters’ calculations based on government data, China’s trade-weighted yuan basket index has risen to 98.45, the highest level since March 16, 2016. Many investors feel that a score of 98 is the index’s ceiling, and that a result higher than that would be detrimental to China’s exports. Some market participants speculated that the rising basket index would compel officials to intervene to cool the market. “The relatively rich valuation of the CNY, with year-to-date 3.8 percent appreciation against its basket, adds another layer of vulnerability in the coming months, not to mention the policy divergence with the US Federal Reserve on tapering and normalization,” said Wee-Khoon Chong, senior markets strategist for APAC at BNY Mellon, in a note. As of 0234 GMT, the spot market began at 6.4731 per dollar and was trading at 6.4764, 79 pips lower than the previous late session finish. This year, the yuan has only gained 0.8 percent against the dollar. On Tuesday, Sun Guofeng, the PBOC’s head of monetary policy, told the media that China would maintain a normal monetary policy stance, prioritizing stability and focusing on internal conditions. Sun made his comments after the People’s Bank of China (PBOC) stated on Friday that it will reduce the amount of cash that banks must keep as reserves. However, some investors interpreted the unexpected RRR cut as a dovish shift, believing that increased liquidity would inevitably put downward pressure on the currency, according to traders. Winni Zhou and Andrew Galbraith contributed reporting, and Himani Sarkar and Gerry Doyle edited the piece./nRead More

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