Wires

Yuan hovers at 5-month high ahead of trade deal signing

SHANGHAI, Jan 10 (Reuters) - China's yuan hovered around five-month highs on Friday and was on track for its third weekly gain in a row, as investors looked to Beijing and Washington soon signing a first phase trade deal. China's Vice Premier Liu He, head of the country's negotiation team in Sino-U.S. trade talks, will sign a Phase 1 deal in Washington next week, the commerce ministry said on Thursday. It was the first time the Chinese side confirmed the signing, said a trader at a Chinese bank, although he added that the market had largely priced in the trade agreement. The spot market opened at 6.9283 per dollar and was changing hands at 6.9329 at midday, 5 pips weaker than the previous late session close. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.9351 per dollar, 146 pips or 0.2% firmer than the previous fix of 6.9497. Friday's official guidance rate was the strongest since Aug. 5, 2019. Market participants said there were some profit-taking orders in early trade after recent sharp rallies in the yuan. A second trader at a Chinese bank said the majority of banks' proprietary accounts seemed to be still going long on the yuan. If the onshore spot yuan finishes the late night session at the midday level, it would have strengthened 0.46% to the dollar for the week. And the yuan has recovered all of its losses since the start of August, when trade tensions between the world's two largest economies intensified. "Key factors leading the yuan's movements ahead of the Lunar New Year are likely to be the continued dollar selling and increasing foreign capital allocation of yuan-denominated assets," analysts at China Construction Bank (Asia) said in a note. The Lunar New Year falls on Jan. 25. They expect the yuan to rise past the key 6.9 per dollar level in the short term. Geopolitical turbulence has roiled global markets this week, but the yuan has outperformed most of its Asian emerging market peers, amid growing optimism as the Jan. 15 date for signing the Sino-U.S. trade deal nears. However, a Reuters poll of FX strategists showed that there will be no respite for the battered Chinese yuan over the coming year as U.S.-China trade relations are expected to remain rocky despite recent hopes for some resolution. The global dollar index fell to 97.424 at midday from the previous close of 97.45. The offshore yuan was trading at 6.9289 per dollar as of midday.

The yuan market at 0401 GMT:

ONSHORE SPOT:

Item Current Previous ChangePBOC midpoint 6.9351 6.9497 0.21%Spot yuan 6.9329 6.9324 -0.01%Divergence from -0.03%

midpoint*

Spot change YTD -0.86%Spot change since 2005 19.38%

revaluation

Key indexes:

Item Current Previous ChangeThomson 92.91 92.89 0.0

Reuters/HKEX CNH index

Dollar index 97.424 97.45 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.

OFFSHORE CNH MARKET

Instrument Current Difference

from onshore

Offshore spot yuan 6.9289 0.06%*Offshore 6.9995 -0.92%

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)