SHANGHAI (Reuters) – China’s yuan slipped below the psychologically important level of 6.7 to the dollar for the first time in more than five years, after state bank support for the currency tapered off in late trade on Monday.

“State banks were quite firm in defending the yuan at 6.6990 before the official close, but since they get off work after 4:30 pm the rates fluctuated more wildly and hit 6.7,” said a trader at a Chinese commercial bank in Shanghai.

“Whether the yuan will stay softer than 6.7 depends on the attitude of state banks tomorrow.”

The yuan settled at 6.6987 per dollar at 4:30 p.m. It dipped to 6.7003 at 4:50 p.m. and then softened to 6.7021, its weakest since September 2010, before clawing back some ground. On Friday, it closed at 6.6883.

The People’s Bank of China factors in the official closing level when it sets the next day’s midpoint fixing, but the spot rate sometimes fluctuates widely until 11:30 p.m. when the evening session finally ends.

The yuan has now lost more then 3 percent of its value against the dollar so far this year, despite the government reiterating that it wants the currency’s value to remain relatively stable and that it will not use the yuan to boost trade competitiveness.

The yuan had flirted with 6.7 for nearly two weeks before finally breaking through.

At the beginning of July, median forecasts in a Reuters poll anticipated the yuan would ease to 6.70 per dollar by end-December and fall further to 6.76 by end-June 2017.

Quoting policy sources, Reuters reported earlier this month that Beijing would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016.

While China posted slightly stronger-than-expected economic growth for the second quarter last week, most analysts had expected downward pressure on the yuan to persist as exports remain weak and investment cools.

Concerns over whether Beijing will allow a sharper devaluation of the currency have added to financial markets’ worries about the slowing global economy and the potential fallout from Britain’s decision to leave the European Union.

“The PBOC let the CNY depreciate relatively fast over the past quarter, and the market does not really understand the rationale…In that situation the only thing to do is buy dollars,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore.

“So I think the PBOC needs to clarify what kind of strategy or exchange rate path they’re looking to see. It’s an important psychological milestone and people will be wondering if there’s anything behind it.”

(Reporting by Lu Jianxin, Nathaniel Taplin and John Ruwitch; Editing by Kim Coghill and Jacqueline Wong)

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