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China's yuan inches up on firmer daily fixing, weaker dollar

SHANGHAI, Oct 26 (Reuters) - China's yuan inched higher against the U.S. dollar on Thursday, in line with a strengthening official midpoint and a weakening of the greenback on global markets. The U.S. unit took a breather after recent rallies rooted in optimism over the prospects for U.S. tax reforms and speculation the next U.S. Federal Reserve chief could steer policy in a more hawkish direction. The global dollar index, a gauge that measures dollar strength against six other currencies, fell to 93.558 at midday from the previous close of 93.711. Prior to market opening on Thursday, the People's Bank of China (PBOC) set the yuan's midpoint at 6.6288 per dollar, 34 pips or 0.05 percent firmer than Wednesday's fix of 6.6322. Thursday's official midpoint, in line with market expectations, guided the spot yuan stronger. The onshore spot yuan opened at 6.6350 per dollar and was changing hands at 6.6315 at midday, 85 pips firmer than the previous late session close. Traders said the spot yuan trade was mainly following the dollar's movement in overseas market, with bank clients' dollar supply and demand largely matched on Thursday morning. A Shanghai based trader at a foreign bank said proprietary trading was "a bit dull". The market "has yet to figure out the direction of the greenback," the trader said, suggesting that the yuan's near-term movement would be affected by the dollar, which will be impacted by announcement of the next U.S. Fed chief. Some domestic traders said multiple currencies will be affected by details of the European Central Bank's plan - expected later on Thursday - for scaling back its bond-buying programme. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.57, weaker than the previous day's 95.63. The offshore yuan was trading 0.03 percent weaker than the onshore spot at 6.6333 per dollar. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.787, or 2.33 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.

The yuan market at 0422 GMT:

ONSHORE SPOT:

Item Current Previous Change PBOC midpoint 6.6288 6.6322 0.05% Spot yuan 6.6315 6.64 0.13% Divergence from 0.04%

midpoint*

Spot change YTD 4.75% Spot change since 2005 24.81%

revaluation

Key indexes:

Item Current Previous Change Thomson 95.57 95.63 -0.1

Reuters/HKEX CNH index

Dollar index 93.558 93.711 -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 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.6333 -0.03% * Offshore 6.787 -2.33%

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 John Ruwitch; Editing by Richard Borsuk)