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China's yuan slips as growing views of US March rate hike boost US dollar

[HONG KONG] China's yuan fell against the US dollar on Wednesday, after the greenback climbed to one-week highs on growing expectations that the US Federal Reserve will raise interest rates this month.

A pause in the US dollar's rally earlier this year had given the yuan and other emerging market currencies a brief respite from depreciation pressure.

The People's Bank of China set the midpoint rate at 6.8798 per US dollar prior to the market open, weaker than the previous fix of 6.875.

In the spot market, the yuan opened at 6.8760 per US dollar and was changing hands at 6.8770 at midday, 83 pips weaker than the previous late session close but 0.04 per cent stronger than the midpoint.

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The spot rate is currently allowed to trade with a range 2 per cent above or below the official fixing on any given day.

"Demand for dollars is strong in the market today and trading is quite active," said a trader at a Chinese bank in Shanghai.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.15, firmer than the previous day's 95.06.

The US dollar firmed overnight after a handful of Federal Reserve policymakers jolted markets into higher expectations for a March US interest rate increase, with comments that suggested rate-setters are worried about waiting too long in the face of pending economic stimulus from Washington.

The global US dollar index against a basket of major currencies rose 0.4 per cent on Wednesday to 101.56.

The offshore yuan was trading 0.2 per cent stronger than the onshore spot at 6.864 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 7.078, or 2.80 per cent weaker than the midpoint.

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