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Yuan extends gains on firmer U.S. rate cut prospects

SHANGHAI, July 11 (Reuters) - China's yuan rose to its strongest in nine days against the dollar on Thursday, after Federal Reserve Chairman Jerome Powell bolstered bets of a cut in U.S. interest rates later this month. Powell pointed to "broad" global weakness that was clouding the U.S. economic outlook amid uncertainty about the fallout from the Trump administration's trade conflict with China and other nations, in his first day of testimony to Congress on Wednesday. His dovish stance dragged the dollar lower and supported the yuan, traders said. Prior to market opening on Thursday, the People's Bank of China (PBOC) set the midpoint rate at 6.8677 per dollar, 117 pips or 0.17 percent firmer than the previous fix of 6.8856. Onshore yuan climbed for a second day, opening at 6.8720 per dollar and rising to a high of 6.8584 at one point in the morning session, its strongest level since July 2. At midday, the spot yuan was changing hands at 6.8631, 119 pips firmer than the previous late session close. Traders said many investors were buying yuan to cover short positions against the dollar to stop losses in the morning session. "But traders are hesitant as they don't think the yuan is likely to continue strengthening a lot," said a trader at a Chinese bank, underscoring uncertainties around Sino-U.S. trade negotiations that have discouraged investors from building up large positions in the yuan. The Chinese currency has been very sensitive to developments in trade talks with the United States in the past year. Several traders said they would continue their "rangebound" trading strategy as they see the Chinese currency moving between 6.85 and 6.9 per dollar in the near term. Economists at Standard Chartered revised their forecast for the yuan to 6.86 per dollar at end-2019, down from 6.65 previously. "We expect downward pressure on China's economy and export growth to continue to weigh on the CNY," they said in a note. "However, broadly expected USD weakness, a wider China-U.S. interest rate gap, and a potential increase in portfolio inflows are supportive factors for the CNY." China is due to release second quarter economic growth data next week. A Reuters poll showed that growth in the world's second-largest economy is expected to slow to a near 30-year low of 6.2% this year, despite a flurry of support measures to spur domestic demand amid a bruising trade war with the United States. The global dollar index fell to 96.879 at midday, from the previous close of 97.104. The offshore yuan was trading at 6.865 per dollar as of midday.

The yuan market at 0353 GMT:


Item Current Previous ChangePBOC midpoint 6.8677 6.8856 0.26%Spot yuan 6.8631 6.875 0.17%Divergence from -0.07%


Spot change YTD 0.14%Spot change since 2005 20.59%


Key indexes:

Item Current Previous ChangeThomson 93.64 93.83 -0.2

Reuters/HKEX CNH index

Dollar index 96.879 97.104 -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.


Instrument Current Difference

from onshore

Offshore spot yuan 6.865 -0.03%*Offshore 6.8991 -0.46%

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 Andrew Galbraith Editing by Jacqueline Wong)