Even as China's central bank weakened its yuan fixing further on Wednesday, uncertainty remains about Beijing's commitment to a floating currency.
The People's Bank of China (PBoC) set the yuan fixing at 6.3306 against the U.S. dollar on Wednesday, 1.6 percent weaker than the previous day's level, signaling its commitment to the change it set out in Tuesday's press release: daily fixings would now be determined by the previous day's closing spot prices and market-moves of other major currencies.
The currency tumbled 1.6 percent on Wednesday following Tuesday's 1.8 percent plunge. The PBoC has said it was aiming for a devaluation of around 2 percent.
Despite the weaker fixing, the central bank said on Wednesday that there was no basis for continued yuan depreciation, citing "ample forex reserves" and a "stable financial system" as supportive factors of exchange rate stability.
But analysts said it could be weeks before it was clear what China intended for the yuan.
"It all depends on whether this step-change is the start of a move towards a more flexible exchange rate regime or an old-style devaluation. As the weeks unfold it will become clear whether Beijing is indeed minded on allowing more flexibility," Diana Choyleva, head of research and chief economist at Lombard Street Research in a report.
"While Tuesday's language seems to hint at a major step in the reform of the FX regime, we caution to read too much into this statement," JPMorgan (JPM) economists echoed in a note. "In the weeks or even months to come, what would happen if spot continues to trade on the weak side of the band?"
If the yuan's fixing will be more market-oriented as the PBoC intends, that implies greater volatility and weakness ahead.