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China's yuan set for the first weekly loss in over a month after strong rally

[SHANGHAI] China'a yuan eased against the US dollar on Friday and looked set to post its first weekly loss since early July, after a strong multi-month rally.

Prior to the market open, the People's Bank of China (PBOC) set the midpoint rate at 6.6744 per US dollar prior, 35 pips or 0.05 per cent weaker than the previous fix 6.6709.

In the spot market, the yuan opened at 6.6750 per US dollar and was changing hands at 6.6771 at midday, 36 pips weaker than the previous late session close and 0.04 per cent softer than the midpoint.

If the spot yuan finishes at the current level at the late night close on Friday, it would have lost nearly 0.2 per cent against the US dollar on the week, its first such loss since the week ended on July 7.

But the yuan has strengthened for three consecutive months from May till July, an unusual run for China's currency.

The rally, which has been fueled largely by a sharp reversal in the US dollar and a string of stronger PBOC fixings, has extended the yuan's gains to 4 per cent so far this year, after it fell around 6.5 per cent last year in the face of US dollar strength.

Traders said slightly stronger corporate dollar demand had also dragged the spot rate lower than the fixing.

Separately, China's foreign exchange regulator said on late Thursday that China will maintain market stability while increasing the flexibility of the yuan exchange rate.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 94.77, firmer than the previous day's 94.75.

The global US dollar index rose to 93.623 from the previous close of 93.622.

The offshore yuan was trading 0.11 per cent weaker than the onshore spot at 6.6842 per US 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 6.835, 2.35 per cent weaker than the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.