SHANGHAI, Sept 3 (Reuters) - The yuan hovered at a 16-month high against the dollar on Thursday after the central bank lifted its official midpoint rate for the eight straight trading day, but it has yet to send any strong signal to rein in strength in the Chinese currency. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at a new 16-month high of 6.8319 per dollar, 57 pips or 0.08% firmer than the previous fix of 6.8376. Thursday's official fixing was the strongest since May 13, 2019, but came in slightly weaker than market projections of 6.8293, similar to Wednesday. But many market participants said the central bank has not yet robustly used its counter-cyclical factor in the midpoint formula as it did in the past to counteract one-way bets in the currency. In the spot market, onshore yuan opened at 6.8323 per dollar and was changing hands at 6.8297 at midday, up 78 pips or 0.11% from the previous late session close. "The central bank has in the past mainly relied on yuan midpoint to guide market expectations, but recent fixings have not clearly shown such intentions and the central bank has reiterated that it had exited frequent intervention," analysts at China Construction Bank (Asia) said in a note. They expect the yuan will continue to appreciate, but at a slower pace, in a range of 6.7 to 6.9 per dollar for the time being. Several domestic currency traders said despite some fluctuations in the greenback in global markets in recent sessions, domestic investors have broadly shaped a consensus of a strong yuan. One trader at a Chinese bank said long yuan positions have become crowded and there remained room for further rises in the yuan. Global investment banks are revising up their forecasts for the yuan, betting that its recent rally will be sustained due to persistent dollar softness and continued capital inflows. Foreign investors in August raised their holdings of China bonds for the 21st month in a row, lured by a rising yuan and attractive yield premiums. The global dollar index rose to 92.833 at midday, when the offshore yuan was trading at 6.8298 per dollar. The yuan market at 0339 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.8319 6.8376 0.08% Spot yuan 6.8297 6.8375 0.11% Divergence from -0.03% midpoint* Spot change YTD 1.95% Spot change since 2005 21.18% revaluation Key indexes: Item Current Previous Change Thomson 93.35 93.18 0.2 Reuters/HKEX CNH index Dollar index 92.833 92.693 0.2 *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 6.8298 0.00% * Offshore 6.9863 -2.21% 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 Winni Zhou and Andrew Galbraith; Editing by Kim Coghill)
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