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Chinese yuan continues to weaken against the US dollar

SHANGHAI (Reuters): China’s yuan eased against the U.S. dollar on Friday, on track to post its worst week in three months after the central bank set its yuan midpoint at a one-week low to reflect the greenback’s extended gains.

The dollar firmed against its major trading partners on Friday morning, buoyed by a rise in U.S. Treasury yields and a more upbeat outlook for economy in the United States.

Markets are closely watching for the outcome of trade talks between top officials from the world’s two largest economies this week. China is offering U.S. President Donald Trump a package of trade concessions and increased purchases of American goods aimed at cutting the U.S. trade deficit with China by up to $200 billion a year, U.S. officials familiar with the proposal said.

In the spot market, the onshore yuan opened at 6.3715 per dollar and was changing hands at 6.3703 at midday, 58 pips weaker than the previous late session close.

If the yuan finishes the late night session at its midday level, it would have lost 0.6 percent to the dollar for the week, the biggest weekly percentage loss since mid-February. The yuan gained 0.4 percent last week.

While the weakness in the Chinese unit, and other emerging market currencies, follows the rally in the dollar, traders say the yuan has remained more resilient.

“It has only edged down against the dollar and has continued strengthening in trade-weighted terms,” analysts at Capital Economics wrote in a note. “This resilience – with capital flows also remaining stable – underlines how successfully policymakers have quashed the depreciation expectations that were well-entrenched in the market not too long ago.”

Despite the dollar’s strength, corporate greenback selling has remained a support for the yuan. However, a trader at a Chinese bank in Shanghai warned that investor’s interest in liquidating their dollar positions would ease if it continued to appreciate.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 98.89, firmer than the previous day’s 98.83.

The offshore yuan was trading 0.16 percent firmer than the onshore spot at 6.36 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 6.468, 1.42 percent weaker than the midpoint.

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