Other currencies were locked in tight ranges ahead of US Federal Reserve Chairman Jerome Powell's speech at Jackson Hole on Friday, which will be closely scrutinised after an inversion in the Treasury yield curve highlighted the risk of a US recession.
Expectations for additional rate cuts are high, and US President Donald Trump's vocal calls for aggressive monetary easing could put the Fed in a bind. "Some investors like commodity trading advisors have linked the downward move in the yuan and Chinese stocks to selling cross yen," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
"The bigger concern is what Powell says tomorrow. He doesn't want to give away too much, but there is already a sense that Trump is doing a lot to decide monetary policy." At the Fed's last meeting in July, the US central bank cut interest rates for the first time in a decade to 2.00-2.25%. The Fed next meets September 17-18.
In onshore trading, the yuan fell to 7.0752 per dollar, its weakest since March 2008, before recovering slightly to 7.0732. In offshore trade the dollar rose 0.29% to 7.0872 yuan. Major Chinese state-owned banks were seen supporting the yuan by receiving dollar/yuan swaps, traders told Reuters.
The International Monetary Fund on Wednesday warned governments against trying to weaken their currencies through monetary easing or market intervention. This could place unwanted attention on the yuan after the US Treasury declared China a currency manipulator in an escalation of the US-China trade war.
China is also in the spotlight as a series of protests in Hong Kong calling for greater democratic freedoms have become the biggest challenge to Chinese rule of the city since it reverted from British colonial rule in 1997. The dollar held steady at 106.43 yen following a 0.36% gain on Wednesday, its biggest since August 13.
Against the Swiss franc, the dollar traded at 0.9828, close to a two-week high of 0.9831. The Australian dollar fell 0.32% to $0.6761 and declined 0.47% to 71.95 yen. The New Zealand dollar skidded to $0.6372, the lowest since January 2016, and slumped 0.66% to 67.84 yen. Sterling traded a tad lower at 91.46 pence per euro, on course for its second day of losses, as uncertainty about Britain's divorce from the European Union weighed on the pound. Against the greenback, sterling was little changed at $1.2127.
French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain's exit from the EU. British Prime Minister Boris Johnson is due to meett Macron in Paris on Thursday Minutes from the Fed's last meeting released on Wednesday showed policymakers were deeply divided over whether to cut interest rates but were united in wanting to signal they were not on a preset path to more cuts. Benchmark 10-year Treasury yields gained after the minutes, but interest rate futures are pricing in a 100% probability of a Fed rate cut at its September meeting, a 75% chance of an additional cut in October, and a 48% likelihood of another cut in December, the CME's FedWatch tool shows.