Sources familiar with the matter said the PBOC had told banks that contribute mid-point estimates they could adjust the "counter-cyclical factor" by themselves, effectively allowing them to minimise its influence on their exchange rate contributions. The "X" factor was introduced last year to reduce volatility in the renminbi after the Chinese currency lost around 6.5 percent in 2016.
Prior to market opening on Wednesday, the PBOC lowered its official yuan midpoint to the weakest level in nearly two weeks to 6.5207 per dollar. Wednesday's official midpoint was 239 pips, or 0.37 percent, softer than the previous fix of 6.4968 on Tuesday and was the weakest since December 29, 2017.
Traders confirmed the fixing matched their models, which neutralised the effect of the "X" factor. In the spot market, the onshore yuan opened at 6.5360 per dollar and weakened to a low of 6.5385 per dollar at one point in morning trade, the softest level since December 28, 2017.
As of midday, the spot yuan rate was changing hands at 6.5218 per dollar, 67 pips firmer than the previous late session close but 0.02 percent weaker than the midpoint. Its offshore counterpart also eased to a two-week low of 6.5450 per dollar in morning trade before paring the losses. It settled at 6.5277 per dollar as of midday, 0.09 percent weaker than the onshore spot.
The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.55, weaker than the previous day's 95.66. The global dollar index fell to 92.441 from the previous close of 92.528.