Yuan on track for biggest weekly loss, market reforms in focus

China's yuan looks set for its biggest daily loss on record on Friday, as the central bank stepped up its intervention to weaken the currency ahead of a key government meeting next week which may be used as a platform to unveil more market reforms.

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Directed at squeezing out speculative plays betting on continued yuan gains, the central bank has set about actively weakening its currency since mid-last week by using a mix of weak daily fixings and asking its agent banks to buy dollars.

Its intervention reached a frenzied pitch on Friday with the onshore yuan falling by its daily one percent limit against a midpoint fixing for the first time since July 2012.

Some analysts expect more weakness in the coming days.In midday trades, the yuan briefly weakened to 6.1808 per dollar, more than 0.8 percent below Thursday's close despite the central bank fixing the yuan slightly stronger at 6.1214 per dollar. The yuan could post its biggest-ever weekly loss around 1.2 percent.

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"I think there is good chance for the spot yuan to break the 6.20 psychologically important level, and it can happen as early as next week," said Kenix Lai, a senior market analyst at Bank of East Asia. "Only fast depreciation of the yuan can stamp out speculative money betting on yuan appreciation."

Stepped-up efforts by the People's Bank of China to actively weaken the currency has led the yuan to a dramatic weakening

cycle that many analysts believe may be a prelude to more foreign exchange market reforms including widening a daily

trading band at an annual parliamentary meeting next week. While the yuan has been allowed to move in a 1 percent

trading band against the US dollar on either side of the central bank's daily reference rate since April 2012, it has mostly hugged the stronger end of the band.

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