SHANGHAI, July 24 (Reuters) - The yuan fell to its lowest level against the dollar in over two weeks on Friday as ties between the world's two largest economies deteriorated further after China told the United States to close its consulate in Chengdu. Beijing's decision was a retaliatory move after Washington abruptly ordered the closure of the Chinese consulate in Houston this week, amid allegations of spying. The yuan looked set for its worst weekly performance in two months, having fallen 0.37% to the dollar, its biggest such loss since late May. Prior to the market opening, the People's Bank of China (PBOC) weakened the midpoint rate to a new one-week low of 6.9938 per dollar, 17 pips or 0.02% softer than the previous fix of 6.9921. In the spot market, onshore yuan opened at 7.0050 per dollar and fell to a low of 7.0225 at one point, the weakest level since July 8. At midday, it was changing hands at 7.0177 at midday, 137 pips or 0.2% weaker than the previous late session close. Traders expect Sino-U.S. tensions will be the key factor influencing the yuan for the time being. Beijing's decision to order Washington to close its consulate in Chengdu was largely expected, as China had said it would retaliate, said a trader at a foreign bank. U.S. Secretary of State Mike Pompeo took fresh aim at China on Thursday, saying Washington and its allies must use "more creative and assertive ways" to press the Chinese Communist Party to change its ways, calling it the "mission of our time." "Going forward, we should not rule out the possibility that Sino-U.S. tensions may worsen from here. However, the market has mostly brushed this off amid persistent risk on," Terence Wu, FX strategist at OCBC Bank in Singapore, said in a note. Relations between Washington and Beijing have deteriorated sharply this year over a range of issues, from trade and technology to the coronavirus, China's territorial claims in the South China Sea and its clampdown on Hong Kong. The global dollar index fell to 94.693 at midday, when the offshore yuan was trading at 7.023 per dollar. The yuan market at 0414 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9938 6.9921 -0.02% Spot yuan 7.0177 7.004 -0.20% Divergence from 0.34% midpoint* Spot change YTD -0.78% Spot change since 2005 17.94% revaluation Key indexes: Item Current Previous Change Thomson 91.71 92 -0.3 Reuters/HKEX CNH index Dollar index 94.693 94.794 -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% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan 7.023 -0.08% * Offshore 7.1613 -2.34% 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)
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