Yuan inches higher, market turns to PBOC for clues to further gains

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    SHANGHAI, May 21 (Reuters) - China's yuan inched higher on
Friday and looked set for a marginal weekly gain against a
weaker dollar as investor concerns about tapering talk by the
U.S. Federal Reserve eased.
    The dollar jumped briefly early in the week after minutes of
the last Fed meeting showed some officials appeared ready to
consider changes to monetary policy based on a continued strong
economic recovery. But it soon weakened again on views that any
tightening is still a long way off.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate at 6.43 per dollar, 164
pips or 0.26% firmer than the previous fix of 6.4464. 
    In the spot market, onshore yuan opened at 6.4337
per dollar and was changing hands at 6.4342 at midday, 13 pips
firmer than the previous late session close.
    Despite slight gains in the yuan on Friday, many traders and
analysts it will continue to trade below the 6.4 per dollar
level for the time being.
    "The PBOC has been setting USD/CNY fixing with an upward
bias in the past sessions to ease market expectations for the
yuan's appreciation amid broad dollar weakness," said Gao Qi, FX
strategist at Scotiabank in Singapore.
    He expected the yuan to trade between 6.40 and 6.50 per
dollar in the near term, with the trade-weighted yuan basket
index to stay in a range of 96.0-97.5
    Ken Cheung, chief Asian FX strategist at Mizuho Bank, said
market participants were anxiously awaiting policy signals from
the PBOC on whether it will allow further yuan strength.
    "A CNY fixing setting below 6.4 will be a confirmation,"
Cheung said.
    "We reckon that the PBOC may turn more cautious on the RMB
appreciation pace and the related growth risk, when the RMB
basket index climbed to a 3-year high alongside weakening
(economic) growth momentum."
    The CFETS yuan basket index, a gauge that
measures the yuan strength against its major trading partners,
stood at 97.2 on Friday, according to Reuters' calculations
based on official data, up 2.49% so far this year.
    China's FX trading platform publishes the CFETS index on a
weekly and monthly basis.
    
    The yuan market at 0408 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.43     6.4464    0.26%
                                       
 Spot yuan          6.4342   6.4355    0.02%
                                       
 Divergence from    0.07%              
 midpoint*                             
 Spot change YTD                       1.46%
 Spot change since 2005                28.63%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.23       97.31     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    89.777      89.794    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    6.4341    0.00%
        *                        
 Offshore              6.5945    -2.49%
 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 Kim
Coghill)
  

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