SHANGHAI, Feb 1 (Reuters) - China's yuan eased against the U.S. dollar on Thursday after hawkish comments from the Federal Reserve supported greenback buying, but the local unit remained just below its recent 2-1/2 year peak following a firmer fixing by the central bank. The Chinese currency finished January with a 3.5 percent gain against the dollar, registering the best monthly performance since 1994, when market rates were unified, according to Thomson Reuters data. It has also clawed back almost all its losses incurred since China shocked global markets with a sharp one-off currency devaluation in August 2015. On Thursday, the dollar held steady against a basket of major currencies after the Fed signaled its confidence about inflation and growth in the world's biggest economy, reinforcing views it will raise rates several more times this year.
Prior to market opening, the People's Bank of China (PBOC) lifted its official yuan midpoint to 6.3045 per dollar, 294 pips, or 0.47 percent, firmer than Wednesday's fix of 6.3339 and was the strongest since Aug. 11, 2015, the date of China's 2 percent one-off currency devaluation. In the spot market, the onshore yuan opened at 6.3050 per dollar and was changing hands at 6.2948 at midday, 83 pips weaker than the previous late session close. Rising domestic demand for the dollar piled some downward pressure on the yuan on Thursday morning, traders said. They added dollar buying from retail investors would pick up very soon, which would create additional headwind for the yuan. Households usually buy dollars to use for overseas travel over the Lunar New Year holiday period, which starts on Feb. 16 this year. The Chinese currency has rallied to a level that was last seen in August 2015, and it has spurred talks on the yuan's future movements in the market. Capital Economics said on late Wednesday that it keeps its forecast for the yuan unchanged to trade at 6.4 per dollar by the end of this year. "If market pressure on the renminbi continues, the PBOC will intervene to temper it," it said in a note, pointing out that the central bank has stayed sidelines in recent months. However, Iris Pang, an economist at ING, said it has raised its year-end forecast of the yuan to 6.10 per dollar. "With the quick fall in the dollar, exporters might chase after the trend to convert their dollar receipts into yuan. This may look illogical but this could happen if the exporters believe that the yuan would keep its strengthening trend then they could get even fewer yuan later," she said in a note on Thursday. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.3, firmer than the previous day's 97.02. The global dollar index fell to 89.08 from the previous close of 89.133. The offshore yuan was trading 0.01 percent weaker than the onshore spot at 6.2957 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 6.419, 1.78 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0413 GMT:
Item Current Previous Change PBOC midpoint 6.3045 6.3339 0.47% Spot yuan 6.2948 6.2865 -0.13% Divergence from -0.15%
Spot change YTD 3.37% Spot change since 2005 31.48%
Item Current Previous Change Thomson 97.3 97.02 0.3
Reuters/HKEX CNH index
Dollar index 89.08 89.133 -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 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
Instrument Current Difference
Offshore spot yuan 6.2957 -0.01% * Offshore 6.419 -1.78%
*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 Sam Holmes)