By Anjani Trivedi 

The weeklong decline in the yuan accelerated Friday, pushing the Chinese currency to its lowest level in five months.

Traders drove the yuan to the closest point it has ever been to the bottom end of the trading range set by the People's Bank of China, which has been forced to let the tightly controlled currency fall further.

"The market is leading this and ultimately the PBOC will follow," said Chris Morrison, a strategist at hedge fund Omni Macro Partners in London. Mr. Morrison says his firm recently increased its bets against the yuan after Beijing cut interest rates last month to boost flagging growth.

On Friday, the central bank set the morning reference rate weaker for a second day against the U.S. dollar, after weeks of setting it stronger in hopes of guiding the spot market higher too. Setting it weaker as the currency falls also prevents the yuan from hitting the 2% daily trading band above or below this so-called central parity rate.

The currency was down as much as 2.9% for the year on Friday.

Despite China's push to internationalize the yuan, the mechanics of opening it up as a market-driven currency are difficult, analysts and investors say.

For much of the last decade, the yuan was on an appreciation streak. After the PBOC allowed it to trade in wider band in 2012, a dash of volatility was introduced into the market as Beijing tried to squeeze out speculators. That, analysts say, has gone the other way, pushing the currency toward a general depreciation trend, instead of two-way moves, especially in recent days with the yuan showing no signs of abating its accelerating slide against the U.S. dollar.

Whether the currency is now overvalued, on a trade-weighted basis--its value based on its trade with trading partners--or adjusted for inflation has become a major part of the debate.

Analysts from Credit Suisse recently wrote the currency is overvalued while others have noted that it isn't--the International Monetary Fund recently noted that the yuan was 5% to 10% undervalued, relative to China's economic indicators.

Mr. Morrison of Omni Macro Partners says he believes the currency is expensive on a trade-weighted basis.

Analysts from ANZ note that "once the current bout of market positioning subsides, the yuan can continue on a modest appreciation path against the U.S. dollar over 2015," despite a stronger U.S. dollar environment, noting that "engineering currency depreciation could prove to be counterproductive, as it may spark destabilizing capital outflows," and in turn lead to tighter money supply if the central bank were forced to intervene.

On Friday, the central parity rate was fixed at 6.1205 against the U.S. dollar and last traded at 6.2202, after hitting its weakest at 6.2316.