HONG KONG - China's yuan initially firmed on Friday after the central bank said it would suspend treasury bond purchases, triggering a jump in bond yields, but later fell back to fresh 16-month lows.

The yuan weakening past a level that China had been defending throughout December has returned the spotlight to its daily reference rate for the managed currency to gauge Beijing’s appetite to support it.

The PBOC’s daily yuan fixing influences global FX markets, impacts trade balances, and shapes currency trends across Asia and beyond.

China reaffirmed its support for the yuan after a sudden drop in the currency late last week fanned speculation that policymakers will greenlight a sharper depreciation.