Yuan finishes domestic session at 10-day low as Sino-U.S. ties worsen

(Updates domestic closing price, adds comments)

SHANGHAI, July 24 (Reuters) - The yuan finished the domestic session at its lowest level in ten days against the dollar on Friday as ties between the world’s two largest economies deteriorated further after China told the United States to close its consulate in Chengdu.

Beijing’s decision was a retaliatory move after Washington abruptly ordered the closure of the Chinese consulate in Houston this week, amid allegations of spying.

Onshore yuan ended its domestic trading session at 7.0162 per dollar, its weakest closing level since July 14. Its offshore counterpart stood at 7.0196 per dollar as of 0830 GMT, 66 pips or 0.1% weaker than the previous close.

The onshore yuan looked set for its worst weekly performance in two months, having fallen 0.35% to the dollar, its biggest such loss since late May.

Prior to the market opening, the People’s Bank of China (PBOC) weakened the midpoint rate to a new one-week low of 6.9938 per dollar, 17 pips or 0.02% softer than the previous fix of 6.9921.

Traders expect Sino-U.S. tensions will be the key factor influencing the yuan for the time being.

“There is little doubt that China’s stance has been becoming tougher ... which implies that the ‘tit-for-tat’ will remain the theme for now,” said Zhou Hao, analyst at Commerzbank in Singapore.

“In the FX space, the dark clouds in the sky means that the Chinese yuan will continue to face depreciation pressure.”

U.S. Secretary of State Mike Pompeo took fresh aim at China on Thursday, saying Washington and its allies must use “more creative and assertive ways” to press the Chinese Communist Party to change its ways, calling it the “mission of our time.”

“Going forward, we should not rule out the possibility that Sino-U.S. tensions may worsen from here. However, the market has mostly brushed this off amid persistent risk on,” Terence Wu, FX strategist at OCBC Bank in Singapore, said in a note.

Relations between Washington and Beijing have deteriorated sharply this year over a range of issues, from trade and technology to the coronavirus, China’s territorial claims in the South China Sea and its clampdown on Hong Kong. (Reporting by Winni Zhou and Andrew Galbraith; Editing by Toby Chopra)