China's yuan weakens on US dollar strength, set for 2nd weekly loss

[SHANGHAI] China's yuan weakened against the US dollar on Friday after the central bank lowered its official midpoint by the most in five weeks, following the greenback's gain in global markets.

The Chinese currency was on track for its second straight weekly loss.

The US dollar rose on Friday while the euro slumped to three-month lows after the European Central Bank extended its bond purchases and reduced the chances that it would hike interest rates in 2018.

The global dollar index, a gauge that measures US dollar strength against six other currencies, increased to 94.774 from the previous close of 94.612.

Prior to market opening on Friday, the People's Bank of China (PBOC) set its official yuan midpoint to the lowest level in nearly three weeks to 6.6473 per dollar.

The move in the midpoint was the biggest one-day weakening in per cent age terms since Sept 21.

Friday's official fixing, 185 pips or 0.28 per cent softer than the previous fix of 6.6288 per US dollar on Thursday, was the weakest since Oct 9. Traders said Friday's guidance rate matched market forecast.

In the spot market, the onshore yuan opened at 6.6555 per US dollar and weakened to 6.6645 per US dollar at one point, the softest level since Sept 29.

At midday, the onshore spot yuan was changing hands at 6.6498, or 63 pips weaker than the previous late session close and 0.04 per cent softer than the midpoint.

If spot yuan closes the late night session at the midday level, it would have lost 0.46 per cent against the greenback this week. In the previous week, the yuan slipped 0.59 per cent.

Traders said the yuan's recent trade was mainly driven by market force as the authorities has "basically exited" from its regular yuan intervention as how the foreign exchange regulator said during the congress.

A trader at a foreign bank in Shanghai said the weakness in the onshore spot yuan reflected gains in the US unit, while some market participants' dollar selling to lock in profits limited losses in the onshore yuan on Friday morning.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.85, firmer than the previous day's 95.61.

The offshore yuan was trading 0.04 per cent weaker than the onshore spot at 6.6525 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 6.806, 2.33 per cent weaker than the midpoint.

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

REUTERS