The yuan held flat against the dollar on Wednesday and its performance lagged far behind the global fall in the U.S. dollar index .DXY, which has broken through a major 200-day moving average support.
The market's enthusiasm over yuan appreciation from a sliding dollar was dampened by the People's Bank of China's clear signal it does not want the yuan to move widely despite dollar weakness.
The central bank on Wednesday set the yuan's mid-point, or its reference rate from where the Chinese currency can rise or fall 0.5 percent against the dollar in a day, at its highest level since the yuan's landmark July 2005 revaluation.
But it was no more than a symbolic move as the mid-point was only seven pips up at 6.7715 from Tuesday's 6.7722. Spot yuan was trading at 6.7732 to the dollar in late morning trade, little changed from 6.7730 at Tuesday's close.
The PBOC's intention to keep the yuan stable despite dollar weakness is crystal clear and no one wants to fight with the central bank, said a dealer at an Asian bank in Shanghai.
China's slowing economic growth could be key to how much the PBOC is willing to tolerate a stronger yuan.
The prevailing view of some Chinese leaders is that the more global markets are in turmoil, the more China needs to keep its currency stable.
The Chinese authorities have repeatedly said that a stable yuan has contributed to global market stability at crucial times, such as during the Asian financial crisis in 1997-98 and the global crisis in recent years.
In the latest sign of such a slowdown, a top government think tank said on Wednesday that China's economy would cool further this quarter as fiscal pump-priming starts to fade and the restocking cycle draws to a close.
Annual gross domestic product growth will slow to 9.2 percent from 10.3 percent in the second quarter and 11.9 percent in the first, the State Information Center said in a report published in official media.
The center had previously forecast full-year growth of 9.5 percent, which would be close to the average for the past 30 years.
Since the PBOC announced a depegging of the yuan against the dollar on June 19, it has let it appreciate 0.78 percent to the dollar, but it has guided the yuan lower by more than 5 percent against the euro and the yen.
The yuan's disparate moves against these major currencies reinforce views the PBOC intends to steer the yuan's value against a basket of currencies, and not against the dollar.
Many dealers suspect the Chinese basket is nearly exclusively dominated by the dollar, at around 70 percent, and the euro and yen, comprise the bulk of the remaining 30 percent.
The PBOC appears to have kept these three major currencies balanced since the depegging, keeping the yuan basically stable as a whole, dealers said.
Offshore, benchmark one-year dollar/yuan non-deliverable forwards were bid at 6.6700 in late morning from Tuesday's close of 6.6720, with their implied 12-month yuan appreciation little changed at 1.52 percent from 1.50 percent.
(Editing by Jacqueline Wong)