Top Stories
Top Stories
Wires

Yuan weakens amid dollar strength, Beijing's tariff retaliation pledge

SHANGHAI, Aug 16 (Reuters) - China's yuan eased on Friday, pressured by a stronger dollar and trade worries after Beijing pledged to retaliate for the latest U.S. tariffs. Th dollar firmed after upbeat U.S. retail sales data, which helped to ease financial market fears that the economy was heading into recession. The global dollar index traded at 98.211 as of midday, after hitting a two-week high of 98.249 earlier in the session. Prior to the market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 7.0312 per dollar, weaker than the previous fix of 7.0268. In the spot market, onshore yuan opened at 7.0375 per dollar and was changing hands at 7.0390 at midday, 57 pips weaker than the previous late session close. If the onshore spot yuan finishes the late night session at the midday level, it would have gained 0.3 percent to the dollar for the week, after posting two straight weeks of huge losses. But the yuan has still lost 2 percent of its value against the greenback since U.S. President Donald Trump said early this month that he would slap fresh tariffs on $300 billion of Chinese imports on Sept. 1. Trump's statement this week that he would delay some of those tariffs until Dec. 15 brought only fleeting relief to markets. "Hard attitudes" from both the United States and China on the trade negotiations has become a key concern for investors, said a trader at a Chinese bank, noting that the yuan has been very sensitive to developments in trade war, which is dragging into its second year. China on Thursday vowed to counter the latest U.S. tariffs but called on the United States to meet it halfway on a potential trade deal. Separately, the European Central Bank's easing expectations has also offered some support for the dollar and pressured the yuan, said a second trader at a Chinese bank. Euro was down after a Wall Street Journal report showed that ECB's Olli Rehn sees the need for an "impactful and significant" stimulus package at its next meeting in September.

China let the yuan fall through the closely watched 7 per dollar level on Aug. 5, days after Trump's tariff announcement, but has been seen trying to steady it since. Frances Cheung, head of macro strategy for Asian at Westpac in Singapore, said the yuan was likely to be supported at 7.1 for now. "With the burden of '7' out of the way, the flexibility for the RMB to move based on market forces and fundamentals has increased," she said in a note. "We expect USD/CNY to grind towards 7.20 by year end. The prospect for sustained bond inflows represents a supportive factor which helps prevent more rapid RMB depreciation." The offshore yuan was trading at 7.0509 per dollar as of midday.

The yuan market at 0452 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 7.0312 7.0268 -0.06%Spot yuan 7.039 7.0333 -0.08%Divergence from 0.11%

midpoint*

Spot change YTD -2.36%Spot change since 2005 17.58%

revaluation

Key indexes:

Item Current Previous ChangeThomson 92.3 92.36 -0.1

Reuters/HKEX CNH index

Dollar index 98.211 98.144 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

from onshore

Offshore spot yuan 7.0509 -0.17%*Offshore 7.1077 -1.08%

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 Kim Coghill)