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Yuan off 16-month peak on dollar's rebound, weaker-than-expected guidance

    SHANGHAI, Sept 2 (Reuters) - The yuan eased from a 16-month
high on Wednesday as the dollar rebounded, snapping a three-day
winning streak, while a weaker-than-expected official midpoint
rate also discouraged yuan bulls. 
    The dollar bounced off two-year lows after U.S. data
pointed to firm manufacturing activity.
    Prior to the market opening onshore, the People's Bank of
China (PBOC) set the midpoint rate at 6.8376 per
dollar, 122 pips or 0.18% firmer than the previous fix of
6.8498. It was the strongest guidance rate since May 14, 2019.
    However, the guided rate was slightly weaker than market
expectations of 6.8318, with some traders wondering if the
authorities might be starting to get a bit uncomfortable with
the currency's recent rapid gains.
    "The PBOC is yet to send a very strong policy signal against
CNY's appreciation vs the USD – the recent 'countercyclical
factors' are still small, in comparison with historical CNY
appreciation episodes," economists at Goldman Sachs said in a
    They expect broad dollar weakness and widened interest rate
differentials between China and the United States to continue,
and see downside risk to their 12-month forecast of USD/CNY at
    In the spot market, onshore yuan opened at 6.8320
per dollar and was changing hands at 6.8326 at midday, 51 pips
weaker than the previous late session close. It hit a high of
6.81 on Tuesday, the loftiest level since May 10, 2019.
    The onshore yuan has gained 1.84% to the dollar in August,
booking the best month since January 2019, and was up about 2%
so far this year.
    "In particular, stay negative on the USD/CNH, after the pair
hit the southbound target at 6.8200 yesterday. Expect some
consolidation between 6.8200 and 6.8400, but the sell on rallies
preference remains for now," said Terence Wu, FX strategist at
OCBC Bank.
    A trader at a Chinese bank said the market has reached a
consensus about a stronger yuan against the backdrop of
persistent dollar weakness, with many market participants now
looking at 6.8 per dollar as the next resistance level.
    The global dollar index rose to 92.404 at midday,
while the offshore yuan was trading at 6.8352 per
    The yuan market at 0331 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.8376   6.8498    0.18%
 Spot yuan          6.8326   6.8275    -0.07%
 Divergence from    -0.07%             
 Spot change YTD                       1.91%
 Spot change since 2005                21.13%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         93.04       92.87     0.2
 CNH index                             
 Dollar index    92.404      92.248    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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.8352    -0.04%
 Offshore              6.9947    -2.25%
*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
Richard Pullin)