SHANGHAI (June 20): China's yuan fell to a fresh seven-month low against the dollar on Thursday, after the central bank set much weaker official guidance, while the Chinese currency hit the weaker end of its trading band in cash settlement transactions.

Prior to the market's opening, the People's Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1192 per US dollar. That was the weakest since November 2023 and the largest one-day move since April 16.

The PBOC has to "passively" set the yuan midpoint weaker to avoid the tomorrow-next trades from hitting the lower side of the trading band at market opening, said Xing Zhaopeng, senior China strategist at ANZ.

The yuan hit the weak end of the band in cash settlement transactions on Thursday, traders said.

"Lacking liquidity will affect market expectations," Xing said, adding the central bank will continue to allow the yuan to drift weaker in an orderly manner.

The spot yuan dropped to 7.2605 in early trade, the weakest since November 2023 and only 11 pips from the lower end of the daily trading band. It was changing hands at 7.2602 by midday, 30 pips weaker than the previous late session close and 1.98% away from the midpoint.

It is insufficient to conclude that Thursday's fixing signals an immediate change in the PBOC's FX policy stance but there are signs it may be slightly relaxing the lower bound of the daily yuan trading band against the dollar, said Becky Liu, head of China macro strategy at Standard Chartered.

Earlier on Thursday, China left benchmark lending rates unchanged at a monthly fixing, matching market expectations and underscoring Beijing's monetary easing efforts continue to be constrained by a weak yuan.

The currency is down 2.2% this year, pressured by its relative low yields versus other currencies and a struggling property sector.

The spot yuan opened at 7.2580 per dollar and was changing hands at 7.2602 at midday, 30 pips weaker than the previous late session close and 1.98% away from the midpoint.

The global dollar index rose to 105.287 from the previous close of 105.254.

The offshore yuan was trading 231 pips weaker than the onshore spot at 7.2833 per dollar.