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China yuan softer as safe-harbour demand boosts dollar

    SHANGHAI, Dec 8 (Reuters) - China's yuan weakened on Tuesday
as safe-harbour demand for the dollar boosted the greenback and
as Brexit worries battered the pound, with Sino-U.S. tensions
continuing to weigh on sentiment. 
    Before the market open, the People's Bank of China (PBOC)
set the midpoint rate for the yuan's daily trading band
 at 6.532 per dollar, its firmest level since June 26,
2018. 
    Despite the firmer fixing, spot yuan opened
weaker at 6.5340 per dollar and was changing hands at 6.5361 at
midday, 61 pips softer than Monday's late session close.
    "There is a lot of buying supporting the dollar, so there's
not much room for the USD/CNY pair to keep falling. We need to
watch the progress of Brexit and bipartisan negotiations in the
U.S.," said a trader at a Chinese bank.
    The yuan has strengthened more than 6.5% against the dollar
this year, prompting market speculation that the PBOC might take
steps to stabilise the rising yuan. But sources say policymakers
are comfortable with the yuan's rise to 2 1/2-year highs.
  
    Li-Gang Liu, chief China economist at Citi said that he
continued to see a strong bias toward yuan appreciation into
2021.
    "As the PBOC's policy exit is way ahead of other industrial
economies, the already large interest-rate differential will
likely remain, and could continue to enlarge next year, which
helps attract large and persistent capital inflows and supports
continuous RMB appreciation," he said in a note.   
    In the short term, traders said that the yuan would still be
guided by dollar movements, with Sino-U.S. frictions having a
negative impact.
    The United States on Monday imposed financial sanctions and
a travel ban on 14 Chinese officials over their alleged role in
Beijing's disqualification last month of elected opposition
legislators in Hong Kong.
    The move was widely seen as the latest in a recent series of
efforts by outgoing President Donald Trump to box
president-elect Joe Biden into hardline positions on Beijing,
though Chinese Foreign Minister Wang Yi on Sunday assured U.S.
executives that Beijing remained committed to the Phase 1 trade
deal with the United States.


    The yuan market at 4:01AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.532    6.5362    0.06%
                                       
 Spot yuan          6.5361   6.53      -0.09%
                                       
 Divergence from    0.06%              
 midpoint*                             
 Spot change YTD                       6.53%
 Spot change since 2005                26.63%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.43       95.47     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.853      90.879    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% from official midpoint rate it sets each
morning.

    OFFSHORE CNH MARKET   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.5208    0.23%
        *                        
 Offshore              6.693     -2.41%
 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 Andrew Galbraith; Editing by Simon Cameron-Moore)
  
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