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Yuan inches up as sends strong signal

SHANGHAI, June 3 (Reuters) - China's yuan inched up against the U.S. dollar on Monday, after posting its worst monthly performance in 10 last month, as the central bank set a firmer midpoint to warn off speculators after Sino-U.S. trade rhetoric heated up over the weekend. Onshore spot yuan lost 2.45 percent to the dollar in May, the biggest monthly fall since July 2018, pressured by a major escalation in Sino-U.S. trade tensions as President Donald Trump raised tariffs on May 10 on $200 billion of Chinese imports to 25 percent from 10 percent previously. An increase in Chinese tariffs on most U.S. imports on a $60 billion target list took effect as planned on Saturday. Prior to market opening on Monday, the People's Bank of China (PBOC) set the midpoint rate at 6.8896 per dollar, 96 pips or 0.14 percent firmer than the previous fix of 6.8992. The official yuan midpoint fixings have been persistently set in a very tight range, marginally firmer than the psychologically-important 6.9 per dollar level in the past few weeks. Monday's guidance rate was 13 pips firmer than Reuters' estimate of 6.8909 per dollar. In the spot market, onshore yuan was changing hands at 6.9025 at midday, 15 pips firmer than the previous late session close but 0.19 percent softer than the midpoint. "China continued to keep its daily fixing stable below 6.90, sending a strong signal to the market," Tommy Xie, head of Greater China research at OCBC Bank in Singapore, said in a note. "The market will closely watch out for the daily fixing in the next few weeks, whether China will continue to tweak its pricing mechanism when the RMB approaches the critical level of 7." Traders said a firmer fixing lifted the renminbi on Monday, but the market lacked momentum as huge uncertainties over stalled trade negotiations dampen the yuan's outlook. "The yuan is likely to continue trading around 6.9 per dollar for now. Sino-U.S. trade tensions and the central bank's attitude on the currency are still the two key drivers for the yuan's movement in the near term," said a trader at a Chinese bank. A second trader at a foreign bank attributed slight strength in the yuan to other non-dollar currencies, which were generally firmer in the morning session. Against a basket of six major currencies, the dollar slipped 0.14 percent to 97.613 by midday, though it was still up 1.5 percent so far this year. A policy paper published by the Chinese government on Sunday said that latest U.S. tariffs on Chinese imports will not resolve the two countries' trade issues, and the United States bears responsibility for setbacks in trade talks. "We maintain our view that the trade war risks will extend at least into 2020 based on current developments," ANZ said in a note following the release of the white paper. Separately, some market watchers said fresh signs of economic weakness and a worsening trade war may raise the chance the PBOC will deploy bolder stimulus. Analysts at Ping An Securities said chances for a lowering of bank reserve requirement ratios again should not be ruled out if liquidity becomes significantly tightened, there is no trade deal between China and the United States after the G20 summit in late June, and economic indicators deteriorate. A total of 1.8855 trillion yuan ($273.21 billion) worth of medium-term lending facility loans are set to mature in the June-August period, accounting for more than half of such outstanding loans granted by the PBOC to financial institutions. Meanwhile, over 4.4 trillion yuan worth of negotiable certificates of deposit are set to mature in the next three months, according to Refinitiv data. The offshore yuan was trading at 6.9244 per dollar.

The yuan market at 0400 GMT:


Item Current Previous ChangePBOC midpoint 6.8896 6.8992 0.14%Spot yuan 6.9025 6.904 0.02%Divergence from 0.19%


Spot change YTD -0.43%Spot change since 2005 19.91%


Key indexes:

Item Current Previous ChangeThomson 93.61 93.79 -0.2

Reuters/HKEX CNH index

Dollar index 97.613 97.75 -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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.9244 -0.32%*Offshore 6.9655 -1.09%

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. .

($1 = 6.9014 Chinese yuan)

(Reporting by Winni Zhou and John Ruwitch Editing by Jacqueline Wong)