China's yuan inched up slightly and consolidated around the key 6.8 per dollar level on Wednesday, even though the central bank further cut the official midpoint fix to the lowest level since June 2017.

The midpoint came in largely matching market expectations, traders said.

"Today's midpoint fix suggests that the PBC [People's Bank of China, the country's central bank] has no qualms in setting it above psychological waypoints," Terence Wu, FX strategist at OCBC Bank, said in a note.

In the spot market, the onshore yuan opened at 6.7930 per dollar and weakened to 6.8018 at midday, before changing hands around 6.78 during the afternoon trading session. 

The onshore spot yuan was above a low of 6.8295 per dollar hit on Tuesday, the weakest since June 27, 2017.

Despite the yuan's consolidation around 6.8 per dollar, multiple traders said they did not see major State-owned banks attempting to prop up the yuan.

"It appears that investors have been digesting the PBC's non-intervention FX policy," Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, wrote in a note.

The IMF said in its annual External Sector Report on Tuesday that the US dollar is overvalued, while China's currency is in line with fundamentals. 

The report said that IMF staff had assessed the US dollar again to be overvalued compared to levels implied by medium-term fundamentals, by about 8 percent to 16 percent last year.

"It seems that investors were putting the trade war risk aside temporarily," said Cheung. 

He expects the market to stabilize in the coming days, with both onshore and offshore yuan to waver around 6.8 per dollar.

The Trump administration on Tuesday said it would use a Great Depression-era program to pay up to $12 billion to help US farmers weather a growing trade war with China, the EU and others that US President Donald Trump himself began.

Cover image: VCG