Yuan eases, as sentiment weighed by ongoing Sino-U.S. tensions

    SHANGHAI, July 20 (Reuters) - The yuan traded lower at
midday after swinging in a tight range around the critical 7 per
dollar level on Monday morning, as ongoing Sino-U.S. tensions
pressured sentiment but investors were yet to gauge any
substantive actions.
    China's embassy in Myanmar on Sunday accused the United
States of "outrageously smearing" the country and driving a
wedge with its Southeast Asian neighbors over the contested
South China Sea and Hong Kong, reflecting the increasingly
fraught relations between the superpowers.
    Yuan traders said recent news headlines suggested that
tensions between the world's two largest economies were
escalating, but impact on the currency remained limited as
neither side mentioned they would break the Phase 1 trade deal.
    "The trend of a weaker dollar has not yet changed
significantly, as long as the Sino-U.S. trade agreement is not
substantially disrupted, market's optimistic expectations for
the yuan will sustain," analysts at China Construction Bank
(Asia) said in a note.
    They said they still see upside room for the yuan after some
short-term correction.
    The onshore yuan opened at 6.9933 per dollar and
was changing hands at 6.9945 at midday, 30 pips weaker than the
previous late session close.
    Prior to market opening, the People's Bank of China set the
midpoint rate at 6.9928 per dollar, 115 pips or 0.16%
firmer than the previous fix of 7.0043. 
    Several yuan traders said much of their focus was on the
European Union Summit, where leaders were haggling over a plan
to revive economies laid low by the coronavirus pandemic.

    The decision could affect the euro and other major
currencies' movements.
    Separately, the yuan was little reacted to the news that
China kept its benchmark lending rate steady for the third
straight month, matching market expectations, amid signs that
the world's second-largest economy is recovering from the shock
coronavirus pandemic.
    The yuan market at 0400 GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.9928   7.0043    0.16%
 Spot yuan          6.9945   6.9915    -0.04%
 Divergence from    0.02%              
 Spot change YTD                       -0.45%
 Spot change since 2005                18.33%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         92.7        92.7      0.0
 CNH index                             
 Dollar index    96.151      95.927    0.2
*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

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.9927    0.03%
 Offshore              7.1177    -1.75%
*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 Simon