SHANGHAI, Aug 19 (Reuters) - China's yuan strengthened on Wednesday after the central bank set the midpoint at a seven-month high, but tensions between Beijing and Washington curbed the currency's upside potential. The People's Bank of China (PBOC) set the daily fixing at 6.9168 per dollar before the market opened, firmer than the previous fix of 6.9325 and the strongest since Jan. 23. The lofty midpoint came after onshore spot yuan ended its domestic trading session at its firmest against the dollar in nearly seven months on Tuesday. After opening at 6.9168 per dollar on Wednesday, the onshore yuan was changing hands by 6.9215 at midday, a fraction stronger than its late-session close. The offshore yuan was slightly weaker after rising to a more than five-month high on Tuesday, trading at 6.9148 per dollar around midday. Traders said that continued uncertainty over the U.S. economic recovery and ability of lawmakers to pass stimulus legislation continued to weigh on the dollar, although worries about fraying Sino-U.S. relations limited the yuan's upside. A senior White House official said on Tuesday that no new high-level talks have been scheduled between the United States and China, after U.S. President Donald Trump said he postponed a planned Aug. 15 review of their trade deal due to frustration with Beijing's handling of the coronavirus pandemic. Traders said the yuan would continue to lag other non-U.S. currencies in the short term, but could benefit from relatively high Chinese yields even if the dollar index rebounded. In the near term, traders said they were looking to the release of the minutes of the U.S. Federal Open Market Committee's July meeting for clues on the Federal Reserve's policy intentions. "Although the yuan continues to be impacted by Sino-U.S. relations, I still expect appreciation," said a trader at a Chinese bank. The yuan market at 4:05AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9168 6.9325 0.23% Spot yuan 6.9215 6.9222 0.01% Divergence from 0.07% midpoint* Spot change YTD 0.60% Spot change since 2005 19.58% revaluation Key indexes: Item Current Previous Change Thomson 91.93 91.97 0.0 Reuters/HKEX CNH index Dollar index 92.324 92.203 0.1 *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 6.9148 0.10% * Offshore 7.0685 -2.15% 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. . (Reporting by Andrew Galbraith and Jindong Zhang; Editing by Jacqueline Wong)
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