SHANGHAI: Spot yuan edged lower on the dollar on Tuesday after the People's Bank of China set its mid-point lower versus the dollar but higher against the euro, to balance its value within a trade-weighted basket of currencies. The PBOC sets a series of mid-points, reference rates, before trading starts each day to guide yuan trade. The yuan is permitted to rise or fall 0.5 percent against the dollar and 3.0 percent against non-dollar currencies each day. Traders and analysts are monitoring yuan moves against a trade-weighted basket as the Chinese central bank had said in mid-June that it would depeg the yuan from the dollar and the yuan would move more in line with such a basket. The yuan/dollar peg was previously in place for two years since mid-2008. More than two weeks into the depegging, the PBOC has given indications that it is trying to keep the yuan's value basically stable against the basket by balancing gains and losses of the Chinese currency against the dollar and non-dollar currencies. "It appears the U.S. dollar index's movements are now playing a major role in the PBOC's mid-points as the central bank tries to let yuan move in line with the basket instead of the dollar alone," said a dealer at a European bank in Shanghai. Reflecting the performance of the dollar index in overnight trade, the PBOC set the yuan's mid-point against the dollar at 6.7790 on Tuesday, down from Monday's 6.7733. The yuan's mid-point versus the euro was fixed at 8.4666, up from Monday's 8.4910. By using a basket of currencies instead of a dollar peg, the PBOC avoids passive movements of the yuan versus other currencies if the dollar should fluctuate sharply in global markets.

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