The Chinese currency posted its biggest drop on record Friday due to speculation of band widening. The yuan's spot rate against the greenback fell 0.9 percent to 6.1808 per dollar on Friday morning, after opening at 6.1275. That was the biggest daily drop since December 2008, and the new low in more than 10 months.
The PBOC set the yuan midpoint at 6.1214 on Friday, 10 basis points higher than Thursday. So far the midpoint has dropped nearly 0.4 percent in 2014.
The reverse in direction has caught investors offguard, most were betting on currency appreciation. Mitul Kotecha, global head of foreign exchange strategy at Credit Agricole, sees the yuan's slide as a short-term thing,
"I don't think this reflects necessarily a significant increase in concerns about China. But at the same time, China doesn't want to have this one-way bet currency," Kotecha said.
"I think they want to liberalize the currency. They want to allow more greater capital inflows and outflows. They want their currency to be more freely trading, in as much as it can. And part of this involves the plan they are doing now...I think that ultimately it will appreciate by the end of this year."