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Yuan treads water ahead of holidays, new virus strain uncertainty

    SHANGHAI, Dec 22 (Reuters) - China's yuan was largely flat
on Tuesday in thin trading ahead of the holidays, against a
wait-and-see backdrop as a new coronavirus strain dulls
vaccination optimism.
    The People's Bank of China (PBOC) set the midpoint rate
 at 6.5387 per dollar prior to market open, 120 pips
firmer than the previous fix of 6.5507. 
    The spot market opened at 6.5469 per dollar and
was changing hands at 6.5519 at midday, 18 pips firmer than the
previous late-session close.
    Traders said the yuan could remain range-bound for the
moment, tracking similar moves in the U.S. dollar as the
Christmas and New Year holiday nears.   
    The dollar was firm on Tuesday but traded well below peaks
hit on a wild ride higher overnight, as a new coronavirus strain
in Britain sent jitters through holiday-thinned currency
markets.
    "The trading activity usually decreased after mid-December
when people started to leave for holidays," said Bruce Yam,
forex strategist at brokerage Everbright Sun Hung Kai. 
    He said the PBOC also did not want the yuan to rally too
much for now as it could hurt the country's exports. 
    Focus was also on the new variant of the coronavirus. 
    A trader at a Chinese bank said eyes are on whether vaccines
are effective against the new variant which could have impact on
economic recovery. 
    Countries across the globe shut their borders to Britain on
Monday due to fears about a highly infectious new coronavirus
strain, causing travel chaos and raising the prospect of food
shortages days before Britain is set to leave the European
Union.   
    The resurgence of coronavirus outbreak in Europe has limited
impact on China's economy and exports, Wang Han, chief economist
at Industrial Securities, said in a note. 
    Separately, Sino-U.S. tension continued to weigh on China'
currency. 
    The United States on Monday imposed additional visa
restrictions on Chinese officials over alleged human rights
abuses, taking further action against Beijing in the final month
of U.S. President Donald Trump's term.
    The Trump administration on Monday published a list of
Chinese and Russian companies with alleged military ties that
restrict them from buying a wide range of U.S. goods and
technology. 
    The Thomson Reuters/HKEX Global CNH index, which
tracks the offshore yuan against a basket of currencies on a
daily basis, stood at 95.08, weaker than the previous day's
95.22. 
    The global dollar index rose to 90.252 from the
previous close of 90.132. 
    The offshore yuan was trading at 6.5424 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 6.6935, -2.31 percent away from the midpoint.
    One-year NDFs are settled against the midpoint, not the spot
rate.

    The yuan market at 4:28AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.5387   6.5507    0.18%
                                       
 Spot yuan          6.5519   6.5501    -0.03%
                                       
 Divergence from    0.20%              
 midpoint*                             
 Spot change YTD                       6.28%
 Spot change since 2005                26.32%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         95.08       95.22     -0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.252      90.132    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    6.5424    0.15%
        *                        
 Offshore              6.6935    -2.31%
 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, Jindong Zhang and Brenda Goh; Editing
by Christopher Cushing)
  
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