SHANGHAI (Dow Jones)--China’s yuan was slightly higher against the U.S. dollar Tuesday afternoon, driven by demand for the local currency following the euro’s rebound against the dollar during Asian trading hours.

On the over-the-counter market, the dollar was at CNY6.7749 around 0730 GMT, down from Monday’s close of CNY6.7758. It traded between CNY6.7747 and CNY6.7802.
The yuan was weaker against the dollar in the morning and early afternoon, after the People’s Bank of China set the session’s dollar-yuan central parity rate higher for the second consecutive day at 6.7790, up from 6.7730 Monday and a record low of 6.7720 Friday.
The daily dollar-yuan fixing is the mid-point around which the spot rate is allowed to trade up or down by as much as 0.5% intraday.
The fixing level was higher than around 6.7740 some traders had anticipated, and indicates the central bank likely intends to steer the dollar higher against the yuan, traders said.
“It signals the PBOC intends to control the speed of yuan appreciation,” a Shanghai-based trader at a foreign bank said. “It seems the central bank aims to control the dollar-yuan around CNY6.7700-CNY6.7800 in the near term.”
The yuan had appreciated 0.74% against the dollar as of Monday since the central bank announced on June 19 a decision to drop its nearly two-year-old currency peg to the dollar and promised to make the yuan exchange rate more flexible.
The Chinese currency weakened Tuesday but reversed losses in the afternoon, when the euro rose against the dollar after China’s foreign exchange regulator reiterated Europe remains a key investment market for China’s foreign exchange reserves, the world’s biggest.
Around 0730 GMT, the euro was at $1.2585, up from $1.2541 in late New York trade Monday.
However, traders said most market participants were cautious, because China’s central bank could intervene in the market to support the dollar if it falls too quickly against the yuan.
They pointed to the dramatic late-session market turnabout Monday, when the dollar rose to CNY6.7758 from a session low of CNY6.7676 within the last hour of trading, as signs of possible central bank intervention.
Offshore, one-year dollar-yuan nondeliverable forwards rose a tad to 6.6718/6.6768 from 6.6710/6.6760 late Monday.