China set another firm fix for its currency on Tuesday and stepped up a verbal campaign to convince markets it remains in control. But the yuan slipped slightly in early trade despite what dealers called aggressive intervention to support the currency. The dollar slipped about 0.2 percent from late North American trade to 117.56, after plumbing a low of 116.70 on Monday, its deepest nadir since August 24.
The euro added about 0.2 percent to $1.0876. "Interest rate differentials don't mean anything at the moment. Risk sentiment, oil prices, and China - people are just focusing on that now," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. The People's Bank of China set the mid-point for the yuan at 6.5628, barely changed from the previous strong fix and higher than its late levels on Monday.
China's central bank plans to keep the yuan basically stable against a basket of currencies, and fluctuations of the Chinese currency against the US dollar will increase, Chief Economist Ma Jun said on the central bank's website late Monday (http://www.pbc.gov.cn). However, Ma added that the yuan will not be strictly pegged to a currency basket either, though no details were given. The Australian dollar, often used as a proxy for China plays because of because of Australia's trade exposure to China, was down about 0.1 percent at $0.6983, remaining above a four-month low of $0.6927 touched on Monday.
The dollar edged up about 0.1 percent against its Canadian dollar to C$1.4225 after the loonie hit a 12 1/2-year low of C$1.4245 in the previous session. Sterling stood at $1.4537, nursing losses after a plunge to a 5-1/2-year low of $1.4491 on Monday, amid expectations that the Bank of England is in no rush to tighten policy when it meets on Thursday.
"While no changes are expected from the central bank, the drop in energy prices and the volatility in the financial markets should make policymakers more nervous," said Kathy Lien, managing director of FX strategy at BK Asset Management. "Low inflation has been a big problem for the BOE - although the weaker currency helps to ease some of that pain," she said in a note to clients.
Analysts polled by Reuters do not expect BOE policymakers to opt for an increase in interest rates for the first time in more than eight years until the second quarter of this year. Some market participants expect the central bank to hold off even longer and refrain from hiking this year. The BOE is seen eventually hiking its benchmark bank rate 25 basis points to 0.75 percent by the end of June, according to the consensus forecast, from a record low 0.50 percent that has stood since early 2009.