Yuan weakens as Sino-U.S. tensions weigh on sentiment

    SHANGHAI, July 29 (Reuters) - China's yuan weakened on
Friday on a softer daily fixing and amid broad concern over ties
between the world's two largest economies, but the move was
limited by expectations the U.S. Federal Reserve would maintain
a dovish stance.
    The greenback sat near two-year lows on Wednesday ahead of
the Fed's policy review, with a grim outlook for the U.S.
economy leading some to expect the Fed to hint at other ways of
loosening policy.
    Around midday on Wednesday, the global dollar index
was at 93.684, down from the previous close of 93.76.
    Despite the dollar's losses, the People's Bank of China set
the midpoint rate at 6.9969 per dollar prior to the
market open, weaker than the previous fix of 6.9895.
    Spot yuan began trading at 7.0020 per dollar and
was changing hands at 7.0028 at midday, just 8 pips weaker than
the previous late session close.
    "The dollar index has weakened recently, but the market is
still digesting the impact of the Sino-U.S. situation so it's
not going to swing to (yuan) appreciation so quickly. In the
near term, the market lacks direction," said a trader at a
foreign bank.
    Traders said that the yuan could strengthen as month-end
dollar demand that has helped to support the U.S. currency
against the yuan eases, provided that ties between Washington
and Beijing stabilise.
    Tensions between the two powers have ratcheted higher this
week as China took over the premises of the U.S. consulate in
the southwestern city of Chengdu on Monday.
    Beijing had ordered the facility to be vacated in
retaliation for China's ouster last week from its consulate in
Houston, Texas.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 91.42, weaker than the previous day's
91.52.

    The yuan market at 4:21AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.9969   6.9895    -0.11%
                                       
 Spot yuan          7.0028   7.002     -0.01%
                                       
 Divergence from    0.08%              
 midpoint*                             
 Spot change YTD                       -0.57%
 Spot change since 2005                18.19%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         91.42       91.52     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.684      93.76     -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    7.0028    0.00%
        *                        
 Offshore              7.1406    -2.01%
 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
Sam Holmes)
  
Our Standards:The Thomson Reuters Trust Principles.
source: reuters.com