China"s yuan dropped to a one-month low against the dollar on Wednesday before clawing back some losses, dragged by a worsening power crunch that is threatening the growth outlook of the world"s second-biggest economy. The weakness also reflected a firmer dollar, which traded near its strongest levels of the year on higher U.S. yields and the prospect of a Federal Reserve exit from its pandemic-era stimulus. The yuan opened at 6.4800 per dollar, the lowest level since August 27, and changed hands at 6.4674 at midday. The People"s Bank of China set the midpoint at 6.4662 per dollar prior to market open, weaker than the previous fix of 6.4608. But China"s trade-weighted CFETS Yuan Basket Index remained strong, rising to its highest level in 5-1/2 years. Traders said authorities would likely want to contain market volatility ahead of the week-long National Day holiday that starts on Friday, limiting the yuan"s losses. China is suffering from a worsening power crunch, as a shortage of coal supplies and toughening emissions standards have pushed coal prices to record highs. The power shortage has hurt production and sparked widespread electricity curbs, dimming the economy"s growth outlook. On Wednesday, China"s all-powerful economic planning agency attempted to reassure residents and businesses in areas hardest hit by shortages that it has the coal use and supply situation under close watch. China"s power shortages won"t be resolved overnight, Capital Economics wrote, potentially putting downward pressure on the yuan. "Power rationing will constrain industrial activity until demand weakens enough to bring the domestic electricity market back into equilibrium." Meanwhile, U.S. Treasury yields have surged in recent sessions amid tapering expectations, with the benchmark 10-year yield last at 1.5548%. The Federal Reserve said last week it will likely begin reducing its monthly bond purchases as soon as November and signalled interest rate increases may follow more quickly than expected. "The wolf is really coming," said a trader at a foreign bank in China. The yuan market at 4:19AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4662 6.4608 -0.08% Spot yuan 6.4674 6.4595 -0.12% Divergence from midpoint* 0.02% Spot change YTD 0.94% Spot change since 2005 revaluation 27.97% Key indexes: Item Current Previous Change Thomson Reuters/HKEX CNH index 99.48 99.54 -0.1 Dollar index 93.717 93.706 0.0 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People"s Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.4702 -0.04% * Offshore 6.6499 -2.76% non-deliverable forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC"s official midpoint, since non-deliverable forwards are settled against the midpoint. .