The People's Bank of China set the yuan's central parity rate, or daily reference prices, against the dollar at 8.0116 yesterday - the highest since the currency was scrapped from a peg to the greenback in July.

The rate indicates the market view of the currency since it is based on the average weighted quotes from more than 10 commercial banks.

The yuan closed at 8.0073 against the greenback in the China Foreign Exchange Trading System yesterday, up 0.12 percent.

"Market forces are the main driver for a strengthened yuan amid a selling build-up on the greenback today (Wednesday)," said Zhu Heng, an Industrial and Commercial Bank of China dealer. "The yuan grew stronger amid a weak US dollar against other currencies in the international market."

It is natural to see a stronger yuan whose prices are now managed in a basket of currencies that are firming against the US dollar, he said.

China dropped its decade-long peg to the greenback on July 21 and shifted to a basket of currencies including euros, yen and the Korean won. The yuan appreciated 2.1 percent immediately and has since gained 1.28 percent.

The US currency weakened against all 16 major currencies that Bloomberg tracks. The greenback lost its luster as the possibility that the Federal Reserve will continue to keep raising rates has eased.

Market forces may be another driver for the yuan, market observers said.

China's government has reiterated in recent months it will let supply-and-demand forces play a key role in determining the yuan's value. The yuan normally goes up on such talk.

The PBOC is likely contented to see a faster appreciation of the yuan since it will spur more corporations to hedge their exposure and to adjust to the new exchange rate, said Stephen Green, a senior economist at Standard Chartered Bank.

"It would not be surprising if the yuan broke the 8.0 barrier next week or even this week," he said in an emailed note. "This will be a big psychological barrier for China, but a bit of a non-event for the markets" because the markets have been expecting a stronger yuan and it was not a question of if but when.