Chinese yuan weakens as dollar pauses ahead of Fed meeting

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    SHANGHAI, June 15 (Reuters) - China's yuan eased to its
weakest against the dollar in more than a week on Tuesday, as
the greenback sat below a one-month high against major peers
ahead of a closely watched Federal Reserve meeting.
    The yuan's moves were limited following a long holiday
weekend as traders adopted a wait-and-see approach, though
market players expect the Fed's discussion on how to taper its
$120 billion in monthly bond purchases to begin cautiously.

    "The expectation is that the U.S. is still going to begin
discussion of tapering slowly. In this sort of situation the
dollar won't be too weak," said a trader at a foreign bank. "Of
course, the pace of U.S. and European policy exits is a risk for
dollar changes."
    In China, policymakers are plotting a steady course, with
the People's Bank of China rolling over 200 billion yuan in
maturing one-year Medium-term Lending Facility (MLF) loans on
Tuesday. The bank kept the one-year rate unchanged for a 14th
straight month.
    "With benign inflationary pressure and RMB appreciation
bias, the PBOC lacks motivation to kick off its rate hike cycle
for now," said Ken Cheung, chief Asian FX strategist at Mizuho
Bank. 
    Before the market open on Tuesday, the PBOC set the yuan's
midpoint rate at 6.407 per dollar, its weakest since
June 4.
    Spot yuan opened weaker 6.4050 per dollar and
trimmed losses to 6.4045 at midday, 65 pips softer than Friday's
late session close. The offshore yuan was slightly
stronger at 6.4038 per dollar.
    The yuan's weakening this month has been in stark contrast
to steady strengthening in May, which prompted a chorus of
official warnings against one-sided expectations of yuan
appreciation. 
    An article in the PBOC-backed Financial News on Tuesday
quoted analysts as saying that the yuan is approaching a
depreciation inflection point, and that it is likely to come
under more pressure in the second half.
    Traders said tensions between China, the U.S. and Europe
could also impact yuan strength. At the first NATO meeting
attended by U.S. President Joe Biden, leaders warned that China
presents "systemic challenges" and Biden urged standing up to
China's authoritarianism and growing military might.

    On Tuesday, the U.S. Navy said an aircraft carrier group led
by the USS Ronald Reagan has entered the South China Sea as part
of a routine mission.
    

    The yuan market at 4:10AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.407    6.3856    -0.33%
                                       
 Spot yuan          6.4045   6.398     -0.10%
                                       
 Divergence from    -0.04%             
 midpoint*                             
 Spot change YTD                       1.93%
 Spot change since 2005                29.23%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.81       97.63     0.2
 Reuters/HKEX                          
 CNH index                             
 Dollar index    90.478      90.489    0.0
 
    
    
*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    6.4038    0.01%
        *                        
 Offshore              6.5566    -2.28%
 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 Andrew Galbraith; Additional reporting by Jindong
Zhang; Editing by Kim Coghill)
  

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