July 22, 2020 / 4:30 AM / 16 days ago

China's yuan firms to over 4-month high as dollar falters

    SHANGHAI, July 22 (Reuters) - China's yuan firmed to its
strongest level against the U.S. dollar in more than four months
on Wednesday, coming closer to recouping all of its losses so
far this year. 
    The dollar slid against most currencies after European Union
leaders agreed on a region-wide rescue plan on Tuesday, boosting
hopes of an economic recovery, while political wrangling in
Washington appeared to be delaying the next round of U.S.
stimulus even as new coronavirus cases continued to
mount.
    On Wednesday morning, as the dollar index stood near
more-than-four-month lows, the People's Bank of China (PBOC) set
the midpoint rate for the yuan's daily trading band
at 6.9718 per dollar, its strongest level since March 12.
    Spot yuan opened at 6.9722 per dollar and
strengthened to a peak of 6.9649 per dollar, its firmest level
since March 11, before dollar buying pared its gains.
    At midday, the currency was changing hands at 6.9713 per
dollar, 0.13% firmer than the previous late session close. The
gain narrowed its year-to-date loss to just 0.1%.
    The offshore yuan also hit its strongest point
since March 11 before easing back to 6.9682 per dollar by
midday. 
    A trader at a Chinese bank said that absent a reversal in
the dollar index, the yuan would continue to strengthen.
    "We need to see how much the dollar index will weaken. At
the moment the dollar's breaking lower and the euro is breaking
higher," he said, adding that the state of the global pandemic,
the Sino-U.S. trade war and U.S. elections were the key factors
to watch.
    Analysts at UBS Wealth Management's chief investment office
said that they expected prolonged easing by the Federal Reserve
and political uncertainty ahead of the U.S. election to lead to
a weaker dollar.
    At midday on Wednesday, the global dollar index was
at 95.112, down from the previous close of 95.139. 

    The yuan market at 4:00AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9718   6.9862    0.21%
                                       
 Spot yuan          6.9713   6.9807    0.13%
                                       
 Divergence from    -0.01%             
 midpoint*                             
 Spot change YTD                       -0.12%
 Spot change since 2005                18.72%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         92.4        92.5      -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    95.112      95.139    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    6.9682    0.04%
        *                        
 Offshore              7.0917    -1.69%
 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
Kim Coghill)
  
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