The Chinese yuan lost ground against the U.S. dollar on Monday, after the People's Bank of China guided the currency lower by fixing a weaker mid-point for the yuan to dollar exchange rate.

The Chinese central bank set the central parity rate of the yuan at 6.5032 versus the U.S. dollar on Monday, the lowest level since May 24, 2011. This may be compared to reference rate of 6.4936 set on December 31. The central bank sets the central parity rate every day and allows the currency to move upto 2 percent from that level.

China's manufacturing sector continued to contract in December, with PMI declining 48.2 in December from 48.6 in November, survey data from Markit revealed.

The yuan declined to 6.5384 against the greenback for the first since April 2011. At Friday's close, the pair was worth 6.4895. The yuan is likely to find downside target around the 6.6 zone.

Trading in the Shanghai Composite index was halted by afternoon after it plunged 6.9 percent on the first trading day of 2016. It was the first time China used a newly launched circuit breaker mechanism to curb market volatility.

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