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China's yuan firms, set for eighth week of gains

    SHANGHAI, Sept 18 (Reuters) - China's yuan firmed on Friday,
resuming its march higher against the dollar and putting it on
course for an eighth straight week of gains after weak U.S. data
pulled the greenback lower.
    As of midday Friday, the yuan was up more than 1.3% for the
week, set for its strongest weekly gain against the dollar since
January 2019 and its longest weekly winning streak against the
greenback since early 2018.
    Friday's rise came after the People's Bank of China (PBOC)
set its midpoint for the yuan's daily trading band at
6.7591 per dollar, its firmest level since May 6, 2019.
    Spot yuan opened at 6.7530 per dollar and was
changing hands at 6.7560 at midday, 82 pips stronger than
Thursday's late session close.
    The offshore yuan firmed to 6.752 per dollar by
midday. 
    While the yuan may consolidate gains after its rapid run-up
and a volatile dollar could moderate short-term yuan rises,
there are few factors supporting being short yuan, with China's
economic recovery and yield premiums continuing to attract
inflows and supporting the yuan, traders said.
    "Although exchange rate flexibility has risen in the past
two years, the yuan is still prone to one-sided expectations.
When a trend starts it doesn't turn around quickly," said a
trader at a foreign bank.
    "Fundamentals and the yield gap all support yuan
appreciation. These haven't changed, and the dollar is again
relatively weak."
    Li Liuyang, chief FX analyst at China Merchants Bank, said
the yuan had appreciated too quickly and could reverse, but in
the mid-to-long term there was room for the yuan to rise more if
the dollar continued to fall.
    A commentary in financial paper The 21st Century Business
Herald on Friday urged vigilance as the yuan appreciates.
    "The basis for yuan appreciation may be a temporary
phenomenon, but if this develops into an expectation and it
continues to appreciate, it could have some impact on China's
long-term development," it said. 
    The U.S. Federal Reserve's commitment to maintaining a
long-term near-zero interest rate had created opportunities for
short-term arbitrage speculators, the commentary said.
    "It is difficult to determine whether the U.S. is
intentionally seeking a strategic devaluation, but the Fed's
policies do have an impact on China's financial markets, and
China should be wary of short-term arbitrage inflows."

    The yuan market at 4:07 AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.7591   6.7675    0.12%
                                       
 Spot yuan          6.756    6.7642    0.12%
                                       
 Divergence from    -0.05%             
 midpoint*                             
 Spot change YTD                       3.07%
 Spot change since 2005                22.51%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         94.01       94.08     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    92.924      92.898    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    6.752     0.06%
        *                        
 Offshore              6.8992    -2.03%
 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
Richard Pullin)
  
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