China's yuan weakened against a rebounding dollar on Wednesday despite the central bank setting a strong guidance rate, amid growing concerns over China's economic health.

Onshore yuan FX_IDC:USDCNY changed hands at 6.7922 per dollar at 2:37 GMT, roughly 0.05% weaker than the previous day's close.

The dollar index TVC:DXY was up 0.1% in Asia trade, riding an upward trend underpinned by expectations of higher U.S. interest rates.

The yuan's softness came even after the People's Bank of China set the yuan's midpoint FX_IDC:USDCNY at 6.8067, the strongest level in over three years, prior to market open. The spot rate is allowed to trade in a band 2 percent above or below the midpoint.

Goldman Sachs said in a note that in meetings with Chinese investors over the past week, "local clients appeared more cautious on China's near-term growth momentum."

"Policy easing expectations also remain subdued, with investors generally expecting support to stay reactive rather than proactive unless downside risks intensify," Goldman said.

"Beyond growth, discussions focused on fragile consumer confidence amid labour market pressures and the negative wealth effect from the ongoing property downturn."

The Chinese yuan has been strong this year, gaining roughly 2.8% against the dollar, even as the U.S. currency advanced 3% against a basket of major peers.

On Wednesday, China's trade-weighted CEFTS RMB Index (.CFSCNYI) rose to the highest level since July 2022, according to Reuters estimates.

The yuan's rise reflects surprising robust exports in the first half, helped by the global AI boom. China's manufacturing sector expanded for a seventh straight month in June, completing its best quarter since late 2020.

It also reflects "a policy tendency toward trade rebalancing" as Beijing seeks to increase imports to reduce trade frictions, China Merchants Securities said in a note.

This week, the EU's trade chief and China's commerce minister started a round of talks in Brussels aimed at solving trade issues.

But the broker added that the yuan's apparent detachment from the dollar is likely unsustainable, as "China's domestic demand is relatively weak this year", failing to offer a solid foundation for the Chinese currency.