SHANGHAI, Feb 9 (Reuters) - China's yuan eased against the dollar on Friday and looked set for its first weekly loss in two months, hurt by the combination of a lower official fix for the local currency and dollar demand linked to the looming Lunar New Year. The Chinese currency lost 0.56 percent against the dollar on Thursday, the worst daily performance since Sept.11, 2017, when Beijing removed some measures it had put in place to support the yuan. Prior to the market opening on Friday, the People's Bank of China lowered it official yuan midpoint rate to 6.3194 per dollar, 372 pips or 0.59 percent weaker than the previous day's fix of 6.2822. It was the biggest one-day weakening of the guidance rate in percentage terms since Jan.9, 2017, and dragged the spot yuan lower. The onshore yuan opened at 6.3212 per dollar and was changing hands at 6.3245 at midday, 60 pips weaker than the previous late session close and 0.08 percent softer than the midpoint. That kept it on course to possibly end the late night session down and book looses for the week, which would snap an eight-week winning streak against the dollar. The yuan gained 0.48 percent a week earlier and is up about 2.9 percent so far this year. The Chinese currency was dragged lower by rising dollar demand from corporate and households, with a trader at a foreign bank in Shanghai saying higher demand for the greenback was seen in both spot and forward markets. Households usually purchase dollars ahead of the Lunar New Year holiday for their trips abroad. The week-long holiday starts on Feb. 15 this year. The yuan trade was thin, however, and the low volumes amplified the volatility in spot market trading, traders said. The half-day trading volume stood at $5.51 billion on Friday, only one-third of that during the same period on normal trading days. Zhou Hao, analyst at Commerzbank in Singapore, said the yuan's appreciation this year was "probably overdone". "We believe that the CNY appreciation will be only a temporary phenomenon. If history is a guide, there is a limit to any currency movement, especially when China's authorities deem the market expects 'too much'," Zhou said in a note on late Thursday. Separately, traders said January inflation data on Friday, showing an easing in price pressures, had little sway on markets. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.49, weaker than the previous day's 97.55. The global dollar index rose to 90.273 from the previous close of 90.229. The offshore yuan was trading 0.35 percent weaker than the onshore spot at 6.3464 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 6.482, 2.51 percent weaker than the midpoint. One-year NDFs are settled against the midpoint, not the spot rate.
The yuan market at 0424 GMT:
Item Current Previous Change PBOC midpoint 6.3194 6.2822 -0.59% Spot yuan 6.3245 6.3185 -0.09% Divergence from 0.08%
Spot change YTD 2.88% Spot change since 2005 30.86%
Item Current Previous Change Thomson 97.49 97.55 -0.1
Reuters/HKEX CNH index
Dollar index 90.273 90.229 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 6.3464 -0.35% * Offshore 6.482 -2.51%
*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 Ruwtich Editing by Shri Navaratnam)