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Yuan hits brief one-week high but pares gains as…

SHANGHAI, July 28 – The yuan briefly hit a one-week high against the dollar on Tuesday morning before giving back all the intraday gains, as Sino-U.S. tension continued testing investors’ nerves and outweighed broad dollar weakness. Market participants became cautious and watched closely for further moves by the world’s two largest economies as diplomatic ties deteriorated recently. China took over the premises of the U.S. consulate in the southwestern city of Chengdu on Monday, after ordering it vacated in retaliation for China’s ouster last week from its consulate in Houston, Texas. Before the open, the People’s Bank of China (PBOC) set the midpoint rate at 6.9895 per dollar, 134 pips or 0.2% firmer than the previous fix of 7.0029, and the strongest since July 22. In the spot market, onshore yuan opened at 6.9880 per dollar and rose to a high of 6.9870 at one point, the highest level since July 22. By midday, it was changing hands at 7.0015, 35 pips weaker than the previous late session close. Traders said some strength in the yuan was reacting to the dollar weakness, but market participants quickly took profit in long yuan positions when the spot price rose past the key psychological level of seven to the dollar. The dollar nursed losses, after slumping to a two-year low, as investors worry about damage to the U.S. economy wrought by the coronavirus and await the latest outlook from the Federal Reserve and passage of a new fiscal rescue package. Analysts at China Construction Bank (Asia) said ties between China and the United States will be key in deciding the yuan exchange rate before the U.S. presidential election in November. “The market has been very sensitive to any news headline about developments in Sino-U.S. relations. Any negative info could pressure the yuan in a very short period of time,” they said in a note, expecting the Chinese currency to swing around the level of seven to the dollar in the near term. The offshore yuan was trading at 7.0023 per dollar by midday. The yuan market at 0407 GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 6.9895 7.0029 0.19% Spot yuan 7.0015 6.998 -0.05% Divergence from 0.17% midpoint* Spot change YTD -0.55% Spot change since 2005 18.21% revaluation Key indexes: Item Current Previous Change Thomson 91.53 91.56 0.0 Reuters/HKEX CNH index Dollar index 93.85 93.538 0.3 *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 7.0023 -0.01% * Offshore 7.1407 -2.12% 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 Winni Zhou and Andrew Galbraith; Editing by Clarence Fernandez)

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