SHANGHAI, Sept 17 (Reuters) - China's yuan slipped on Thursday, despite briefly touching a fresh 16-month high, as a firmer dollar interrupted the momentum of its recent strong run. The dollar edged up against major currencies on Thursday following the U.S. Federal Reserve's upbeat assessment of the economic recovery and as its increased tolerance for higher inflation to push bond yields higher. Prior to the onshore market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7675 per dollar, 150 pips firmer than the previous fix of 6.7825. It was the strongest guidance rate since May 9, 2019. In the spot market, onshore yuan opened at 6.7552 per dollar. It hit a fresh 16-month high of 6.7501, the loftiest level since April 30, 2019, before slipping back to change hands at 6.7768 at midday, 208 pips weaker than the previous late session close. Traders said the dollar rebound could pour some cold water on the yuan's appreciation. The current trading mechanism meant market fluctuations was now larger, while it was normal to see the yuan fall on a dollar rebound, said a trader at a Chinese bank. The yuan has risen more than 6% from lows against the dollar in late May as China's economy has recovered from the fallout of the coronavirus pandemic, although its rapid rise has raised concerns. While China's exchange rate regime does not need to be fundamentally changed, the country should closely monitor large short-term capital inflows and the risk of a rapid yuan appreciation, a former central bank official told a wealth management forum. Analysts said the yuan rally has yet to run it course. "There is a steady flow of foreign exchange earnings thanks to China's strong export growth while demand for foreign exchange purchases is limited," said Zhaopeng Xing, markets economist at ANZ in Shanghai. "Expectations for yuan appreciation are now self-reinforcing, and companies sell dollars as soon as they receive them," Xing added. He said the PBOC, which has so far refrained from direct intervention in the market, is certain to take some measures to deal with the current imbalanced situation where there are only dollar inflows. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.16, firmer than the previous day's 94.09. The global dollar index rose to 93.508 from the previous close of 93.19. The offshore yuan was trading at 6.7768 per dollar after hitting a high of 6.7332. Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan' s value, traded at 6.931, -2.36 percent away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 3:47AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.7675 6.7825 0.22% Spot yuan 6.7768 6.756 -0.31% Divergence from 0.14% midpoint* Spot change YTD 2.75% Spot change since 2005 22.13% revaluation Key indexes: Item Current Previous Change Thomson 94.16 94.09 0.1 Reuters/HKEX CNH index Dollar index 93.508 93.19 0.3 *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% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 6.7768 0.00% * Offshore 6.931 -2.36% 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 Luoyan Liu, Jindong Zhang and Andrew Galbraith; editing by Richard Pullin)
Yuan falls on dollar strength after Fed’s upbeat economic outlook
SHANGHAI, Sept 17 (Reuters) – China’s yuan slipped on Thursday, despite briefly touching a fresh 16-month high, as a firmer dollar interrupted the momentum of its recent strong run. The dollar edged up against major currencies on Thursday following the U.S. Federal Reserve’s upbeat assessment of the economic recovery and […]