China's yuan hit a 13-month low on Friday and was set to post its biggest weekly drop after the central bank stepped up its efforts to shake out hot money from the market, although traders said there were some emerging signs it may be finding a base.
The yuan was trading at 6.2268 near midday (0400 GMT), little changed from Thursday's close at 6.2275. In chaotic early trading, it hit a low of 6.2370, the weakest since Feb. 25, 2013 and nearing the bottom of its permitted trading range.
The People's Bank of China (PBOC) set the daily midpoint of that range at 6.1475, below Thursday's fixing of 6.1460 though at the stronger end of some banks' predictions.
"The supply and demand for dollars today was relatively balanced," said a trader at a Chinese bank in Shanghai. "I think 6.25 will be the bottom of this round of depreciation and more two-way volatility will be seen this year."
At its low, the yuan was 1.5 percent below the PBOC fixing -- a move impossible until this week after the central bank doubled the permitted trading range to 2 percent either side of the midpoint.
For the week, the yuan has lost more than 1.2 percent and is set to post its biggest weekly loss on record, based on Thomson Reuters data going back to 1992. The central bank has progressively lowered the daily midpoint this week, signalling comfort with the yuan's losses.
Goldman Sachs said yuan trade would likely remain painful for speculative long positions, and there were risks for structured products, of which billions of dollars were sold in the offshore market.
(Read more: Yuan's fall may leave some exposed to heavy losses)
But after losses of nearly 3 percent in the yuan this year, unwinding the gains of 2013, market measures of volatility moderated and derivatives were pointing to some stabilisation.
Traders and analysts say the central bank has engineered the sharp fall in the yuan as a way of introducing risk and curbing speculation in a market that was considered a one-way bet.
A run of disappointing data showing China's economy lost steam at the start of 2014, and the country's first domestic bond default and subsequent media reports of trouble at other companies have added to pressure in its financial markets.
"We are starting to see some enquiries from our hedge fund customers on the yuan, but it is too soon to call a bottom," said a currency sales trader at a European Bank in Hong Kong.
"A clear sign from policymakers would mark the turning point here," he said.
That may be near. Premier Li Keqiang said this week investment and construction plans will be accelerated to ensure demand expands at a stable rate - an indication authorities are considering steps to support growth.
Derivative markets showed some signs of things calming down.
(Read more: Will China's slowdown benefit the rest of the world?)
One year-implied volatilities on dollar/yuan, an indicator of perceived swings in the Chinese currency, showed signs of peaking out near 2.2 vol after doubling in a month from below 1 vol in mid-February.
One month risk-reversals on the offshore yuan, an indicator of how much the currency option markets believe the yuan will move, have settled after jumping sharply this week.
In the non-deliverable forwards market, one-year contracts were pricing the yuan at 6.2253 per dollar, stronger than a low of 6.2405 on Thursday and broadly signaling no change from current levels.