(Yicai Global) May 17 -- The exchange rate of the offshore Chinese yuan against the US dollar breached the psychologically important mark of 7 today for the first time since December. But the room for further devaluation is small, analysts said.

The offshore yuan was trading at 7.0166 against the greenback as of 4.16 p.m. China time, sliding 178 basis points during the course of the day. While the onshore yuan tumbled 209 bps to 6.9996. The offshore and onshore yuan have devalued 1.3 percent and 1.4 percent, respectively, against the US dollar since the beginning of the year.

The redback will remain above 7 against the US dollar for some time, online news outlet The Paper reported today, citing Wang Qing, chief macroeconomic analyst at Golden Credit Rating. Recent key economic indicators show a slowdown in China’s economic recovery, which has affected investor sentiment to some degree in the foreign exchange market, Wang Qing said.

The US Federal Reserve’s statement earlier this month that the possibility of lowering interest rates this year is very small spurred a comeback in the US Dollar Index, which led to the softening of the redback, Wang Qing said. But there is not much room for further depreciation.

“Looking into the future, we maintain the expectation that the yuan-dollar rate will reach 6.8 by the end of the year,” Wang Tao, head of China Economic Research at UBS Investment Bank, said in a report released on May 10. “As China’s economic recovery continues and as the Fed’s interest rate hikes cease, we predict the yuan will strengthen in the second half.”

Editor: Kim Taylor