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China's yuan firms on dollar weakness after Powell testimony

    SHANGHAI, Feb 24 (Reuters) - China's yuan inched up on
Wednesday as the dollar slipped against riskier currencies after
the head of the Federal Reserve reiterated the U.S. central
bank's accommodative monetary policy stance, fuelling optimism
about the global economic recovery.
    The People's Bank of China set the midpoint rate
at 6.4615 per dollar prior to market open, 99 pips weaker than
the previous fix of 6.4516. 
    The spot market opened at 6.4535 per dollar and
was changing hands at 6.4614 at midday, 26 pips firmer than the
previous late session close.
    The offshore yuan was trading at 6.4614 per dollar.
    Traders said the onshore yuan would continue to trade in a
range between 6.45 per dollar and 6.5 per dollar. 
    "Chances are low for any big moves in the yuan now, as there
is a lack of direction in the dollar for the short term," said a
trader at Chinese bank. 
    The dollar slipped to a three-year low against the British
pound and nursed losses against commodities currencies on
Wednesday as investors increased bets that a global economic
recovery will boost riskier assets.   
    U.S. Federal Reserve Chair Jerome Powell reiterated on
Tuesday that interest rates will remain low and the Fed will
keep buying bonds to support the U.S. economy, which many
traders say is negative for the dollar in the long-term.
  
    Some analysts said the yuan would face headwinds given
changes in the China-U.S. bond yield spread. 
    Bruce Yam, a forex strategist at Everbright Sung Hun Kai,
noted the interest rate spread between China and the United
States was narrowing as U.S. treasury yields rose, which could
pressure the yuan. 
    Market participants largely looked past the latest headlines
on Sino-U.S. relations. 
    On Tuesday, U.S. President Joe Biden and Canadian Prime
Minister Justin Trudeau pledged to work together to counteract
Chinese influence.    
    Wally Adeyemo, Biden's nominee as deputy Treasury secretary,
said that same day that Washington should work with allies to
hold China accountable to international rules to ensure a level
playing field for companies in the United States and elsewhere.
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 96.07, firmer than the previous day's
96.01. 
    The global dollar index fell to 90.082 from the
previous close of 90.117. 
    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 6.6364, 2.64% away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.


    The yuan market at 3:33AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.4615   6.4516    -0.15%
                                       
 Spot yuan          6.4614   6.464     0.04%
                                       
 Divergence from    0.00%              
 midpoint*                             
 Spot change YTD                       1.04%
 Spot change since 2005                28.09%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         96.07       96.01     0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.082      90.117    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    6.4615    0.00%
        *                        
 Offshore              6.6364    -2.64%
 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, Han Xiao and Andrew Galbraith;
Editing by Ana Nicolaci da Costa)
  
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