SHANGHAI, July 22 (Reuters) - China's yuan firmed to its strongest level against the U.S. dollar in more than four months on Wednesday, coming closer to recouping all of its losses so far this year. The dollar slid against most currencies after European Union leaders agreed on a region-wide rescue plan on Tuesday, boosting hopes of an economic recovery, while political wrangling in Washington appeared to be delaying the next round of U.S. stimulus even as new coronavirus cases continued to mount. On Wednesday morning, as the dollar index stood near more-than-four-month lows, the People's Bank of China (PBOC) set the midpoint rate for the yuan's daily trading band at 6.9718 per dollar, its strongest level since March 12. Spot yuan opened at 6.9722 per dollar and strengthened to a peak of 6.9649 per dollar, its firmest level since March 11, before dollar buying pared its gains. At midday, the currency was changing hands at 6.9713 per dollar, 0.13% firmer than the previous late session close. The gain narrowed its year-to-date loss to just 0.1%. The offshore yuan also hit its strongest point since March 11 before easing back to 6.9682 per dollar by midday. A trader at a Chinese bank said that absent a reversal in the dollar index, the yuan would continue to strengthen. "We need to see how much the dollar index will weaken. At the moment the dollar's breaking lower and the euro is breaking higher," he said, adding that the state of the global pandemic, the Sino-U.S. trade war and U.S. elections were the key factors to watch. Analysts at UBS Wealth Management's chief investment office said that they expected prolonged easing by the Federal Reserve and political uncertainty ahead of the U.S. election to lead to a weaker dollar. At midday on Wednesday, the global dollar index was at 95.112, down from the previous close of 95.139. The yuan market at 4:00AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9718 6.9862 0.21% Spot yuan 6.9713 6.9807 0.13% Divergence from -0.01% midpoint* Spot change YTD -0.12% Spot change since 2005 18.72% revaluation Key indexes: Item Current Previous Change Thomson 92.4 92.5 -0.1 Reuters/HKEX CNH index Dollar index 95.112 95.139 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 6.9682 0.04% * Offshore 7.0917 -1.69% 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 and Jindong Zhang; Editing by Kim Coghill)
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