SHANGHAI, Jan 7 (Reuters) - China's yuan firmed on Thursday against the dollar, which was pressured by expectations of bigger U.S. fiscal spending after Democrats won control of the Senate. The dollar languished near its lowest level in nearly three years on after Democrats won control of the chamber, clearing the way for a larger fiscal stimulus under President-elect Joe Biden. The People's Bank of China set the midpoint rate at 6.4608 per dollar prior to market open, 4 pips weaker than the previous fixing of 6.4604. The spot market opened at 6.4570 per dollar and was changing hands at 6.4571 at midday, 69 pips firmer than the previous late session close. Traders and analysts said regulators' recent moves to guide expectations in the currency market aimed to prevent excessive speculation and could slow the yuan rally. China's foreign exchange regulator said on Wednesday it will fend off disorderly currency fluctuations, after sharp gains in the yuan at the start of the year. The PBOC said on Wednesday it would make its monetary policy flexible, targeted and appropriate in 2021, focusing on supporting small firms as the economy recovers. "Regulators want a slow yuan rise, which would allow export companies to do better hedging," said a trader at a Chinese bank. "The yuan strength in the long-term is not a bad thing, though a quick rally could raise concerns over the potential impact on the country's economy, including quick foreign capital inflows and a shock to the country's exports," said Shen Xinfeng, chief macroanalyst at Northeast Securities. "The regulators' recent remarks mean there is strong pressure for the yuan to rise, though they would not change its rising trend," Shen added. Eyes were also on Sino-U.S. tensions, which could limit the yuan's advance. The Trump administration is considering adding tech giants Alibaba and Tencent to a blacklist of firms allegedly owned or controlled by the Chinese military, two people familiar with the matter said - a move that could inflame tensions with Beijing days before U.S. President-elect Joe Biden takes office. The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.76, firmer than the previous day's 95.65. The global dollar index rose to 89.402 from the previous close of 89.325. The offshore yuan was trading at 6.4378 per dollar. 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 6.574, -1.72% away from the midpoint. One-year NDFs are settled against the midpoint, not the spot rate. The yuan market at 4:12AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.4608 6.4604 -0.01% Spot yuan 6.4565 6.464 0.12% Divergence from -0.07% midpoint* Spot change YTD 1.11% Spot change since 2005 28.19% revaluation Key indexes: Item Current Previous Change Thomson 95.76 95.65 0.1 Reuters/HKEX CNH index Dollar index 89.402 89.325 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 6.4378 0.29% * Offshore 6.574 -1.72% 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 Sam Holmes)
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