China’s yuan firms as dollar eases; all eyes on plenum

SHANGHAI, July 18 (Reuters) –The Chinese yuan strengthened against the U.S. dollar on Thursday, capitalising on an overnight retreat of the greenback, while market participants awaited news from a key leadership gathering in Beijing.

The U.S. dollar =USD stood near its weakest in four months against a basket of currencies as comments from Federal Reserve officials bolstered the case for a rate cut in September.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1285 per dollar, its strongest since July 1 and 1,302 pips firmer than a Reuters estimate.

As of 0305 GMT, the spot yuan CNY=CFXS opened at 7.2559 per dollar and was last trading 39 pips firmer than the previous late session close at 7.2597 and 1.84% weaker than the midpoint.

Also helping the yuan is a stronger yen. The yen JPY=EBS hit a six-week high against the dollar in early trading after a sharp rise on Wednesday that had traders suspecting Japanese authorities were once again in the market supporting the currency.

The dollar index .DXY fell below the 104 mark, influenced by a notably steep decline of the dollar against the yen during late Asian trading hours, said analysts from Maybank.

They also referred to U.S. presidential candidate Donald Trump’s comments in an interview with Bloomberg Businessweek on the weakness of the yuan and the yen.

Despite the offshore yuan strengthening against the dollar overnight, traders at UBS saw hedge funds taking the opportunity to put on post-election dollar-higher trades.

The yuan is 2.2% weaker against the dollar this year. It has been under pressure since early 2023 as domestic woes around a moribund property sector, anaemic consumption and falling yields drive capital flows out of yuan, and foreign investors stay away from its struggling stock market.

Meanwhile, investors are watching closely for policy announcements likely coming out later in the day from the Third Plenum, a top leadership gathering, though it is expected to focus more on longer-term economic and social issues.

China’s Communist Party Central Committee will hold a news conference on Friday on the meeting.

The dollar’s six-currency index =USD was 0.096% higher at 103.77.

The offshore yuan traded at 7.2732 per dollar CNH=, down about 0.01% in Asian trade.

Key onshore vs offshore levels:

• Overnight dollar/yuan swap onshore -8.50 pips vs. offshore -8.50

• Three-month SHIBOR SHIBOR= 1.9 % vs. 3-month CNH HIBOR 3.3 %

LEVELS AT 03:05 GMT

Reporting by Shanghai Newsroom; Editing by Muralikumar Anantharaman