China's yuan rose slightly against the U.S. dollar late Tuesday, in response to the U.S. unit's weakness against the euro and other major regional currencies in Asian hours as market participants held on to hopes that European politicians may work out some measures to address the region's debt troubles at their meetings later this week.
Despite the small increase, the yuan was kept in a tight trading range in the absence of fresh directional cues on both the domestic and overseas fronts, traders said.
On the over-the-counter market, the dollar was at CNY6.3562 around 0830 GMT, lower than Monday's close of CNY6.3594. It traded in a range of CNY6.3550 to CNY6.3590.
Ahead of trading, the People's Bank of China set the dollar/yuan central parity rate at 6.3418, higher than Monday's 6.3478, following the greenback's mild decline against the euro overnight after European officials rebuffed a report that the European Central Bank is planning to cap peripheral euro-zone bond yields.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.435 late Monday in New York, lower than 82.537 late Friday. At 0830 GMT, the index was at 82.142.
"We still think the pair is going to trade in a tight range in the near term, say within 100 pips during intraday trading, as there are no fresh catalysts such as economic data or major political news," said a Shanghai-based foreign bank trader.
The fact that market participants didn't react much to a German report overnight showed that caution will be the main theme until something substantial is done by governments or central banks around the world, he added. The report in German magazine Der Spiegel said that officials were considering a plan to cap the borrowing costs of struggling euro-zone governments by buying unlimited amounts of their bonds to keep interest rates at a reasonable level.
The trader tipped the pair to move in a 6.3450-6.3700 band in the coming sessions.
Traders said market participants may also be on the lookout for the minutes on Wednesday from the Federal Reserve's last policy meeting and euro-zone manufacturing data on Thursday.
The yuan has fallen 1% since the start of 2012.
Offshore, one-year dollar/yuan nondeliverable forward contracts fell to 6.4440/6.4470 from 6.4525/6.4550 late Monday, implying a 1.4% fall by the yuan over the next year.
In the offshore yuan market in Hong Kong, where the Chinese currency floats freely, the dollar was at CNY6.3588, lower than CNY6.3625 late Monday.
