Yuan eases on trade uncertainty, firm inflation tempers PBOC easing views

SHANGHAI, Nov 11 (Reuters) - China's yuan eased on Monday, reflecting strength in the greenback in overseas markets, with sentiment dented by renewed uncertainty over a preliminary trade deal between Beijing and Washington. Losses in the yuan on Monday followed five straight weeks of gains, the longest winning streak in nearly nine months, supported by rising hopes that the world's two largest economies could strike a deal to de-escalate their trade tension. However, the yuan retreated after U.S. President Donald Trump on Friday said he has not agreed to rollbacks of U.S. tariffs sought by China. Providing some bullish signals for the Chinese currency in the forwards markets was firm consumer inflation data, which hosed down expectations for aggressive central bank easing. "Developments around trade negotiations remain the key factor deciding the yuan's movements, and Trump's comment has raised market worries again," a trader at a Chinese bank said. In the spot market, the onshore yuan opened at 6.9960 per dollar, briefly weakening past the key 7 mark before changing hands at 6.9995 at midday, 41 pips softer than the previous late session close. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at a fresh three-month high of 6.9933 per dollar, 12 pips firmer than Friday's fix of 6.9945. Separately, in the forwards market, one-year onshore dollar/yuan swaps jumped to a high of 445 points, the highest level since June 29, 2018. Traders attributed this to China's rapid consumer inflation, which has driven expectations of a widening yield gap between China and the United States. Several yuan traders also said major state-owned banks were seen "heavily buying" dollars to push the swap points up. China's consumer prices rose at their fastest pace in almost eight years in October with year-on-year inflation hitting 3.8%, data showed on Saturday, driven mostly by a surge in pork prices as African swine fever ravaged the country's hog herds.

"The PBOC may maintain its easing stance but prefer low-profile easing measures. Beijing faces a dilemma of worsening growth slowdown and a rapid rise of CPI inflation," Lu Ting, chief China economist at Nomura in Hong Kong said in a note. The global dollar index, a gauge that measures the dollar's strength against a basket of currencies, held near multi-week highs on Monday. It traded at 98.342 as of midday from the previous close of 98.353. The offshore yuan was trading at 6.9995 per dollar as of midday.

The yuan market at 0349 GMT:


Item Current Previous ChangePBOC midpoint 6.9933 6.9945 0.02%Spot yuan 6.9995 6.9954 -0.06%Divergence from 0.09%


Spot change YTD -1.81%Spot change since 2005 18.24%


Key indexes:

Item Current Previous ChangeThomson 92.41 92.57 -0.2

Reuters/HKEX CNH index

Dollar index 98.342 98.353 0.0

*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 6.9995 0.00%*Offshore 7.065 -1.01%

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 John Ruwitch; Editing by Sam Holmes)