Shangai, April 1 - China's yuan on Thursday suffered its biggest overnight fall against the dollar since its July revaluation despite talk that Beijing would allow the yuan to appreciate faster ahead of President Hu Jintao's U.S. visit.
Dealers said the central People's Bank of China hoped to take back the initiative by setting Thursday's mid-point of the yuan's exchange rate at a surprising low 8.0248 to the dollar versus Wednesday's close of 8.0120.
That represented a 0.16 percent slide, the first time the yuan has fallen more than 0.1 percent overnight since the currency was revalued by 2.1 percent to 8.11 per dollar in July and freed from a dollar peg to float within managed bands.
The yuan trimmed some losses to trade at around 8.0200 versus the dollar in the morning.
"It's a surprise," said a Shanghai-based dealer at foreign bank. "It indicates Beijing's determination to have the initiative in setting the yuan's exchange rate."
In the past days, the yuan had shown signs of a quickened appreciation ahead of Hu's U.S. trip next week, hitting a post-revaluation high of 8.0022 versus the dollar on Monday, or a further 1.35 percent appreciation from its July move.
That sparked widespread expectations that the yuan would break through the key 8.0000 level as early as this week.
"We still think the yuan is within easy reach of breaching 8.0000 -- if not this week, then next week or some time in the near term," said a dealer at a Chinese state-owned bank.
"Thursday's weakening will not change the fact that the yuan will appreciate in the medium term, simply due to China's strong foreign investment and trade surpluses" that ensure a steady inflow of dollars into the domestic foreign exchange market.
Washington blames its record $202 billion U.S. deficit with China on an undervalued yuan, barriers to U.S. exports and counterfeiting that hurts U.S. makers of software and movies.
U.S. lawmakers reckon the yuan is as much as 40 percent undervalued. Many economists say the figure is perhaps 10 percent. The International Monetary Fund says it's impossible to guess at the currency's long-term equilibrium rate.