[SHANGHAI] China's yuan jumped to a two-week high against the US dollar on Thursday, after sentiment got a boost from the government's decision to cut tariffs on some US goods.

China said on Thursday it would halve tariffs on some goods imported from the United States starting from 1.01pm local time (0501 GMT) on Feb 14 and reiterated it hopes it can work with Washington to eventually scrap all tariffs in bilateral trade.

The reductions come about three weeks after the two countries signed the Phase 1 trade deal in Washington.

Beijing's decision caught many traders off guard and investors interpreted it as a fresh sign of further de-escalation in the Sino-US trade dispute at a time when China is struggling to contain a fast-spreading coronavirus epidemic that has killed more than 500 people.

Onshore spot yuan opened at 6.9720 per US dollar, leapt to a high of 6.9601 at one point, the strongest since Jan 23.

As of 0418 GMT, it was changing hands at 6.9611, 142 pips firmer than the previous late session close.

Offshore yuan also followed the trend, strengthening to a high of 6.959 per US dollar.

"It seems (the Chinese cabinet) is asking the United States not to rush and give us trouble now," said a trader at a Chinese bank, adding Beijing's latest decision was unexpected.

Several traders said the virus outbreak in China had raised market concerns whether China will be able to implement the Phase 1 trade deal reached with the United States.

The tariff reduction was a sign of China's sincerity it would stick to the deal, traders and analysts said. Prior to market opening on Thursday, the People's Bank of China (PBOC) lowered the midpoint rate for the sixth straight trading day to 6.9985 per US dollar, 162 pips or 0.23 per cent weaker than the previous fix.

Thursday's midpoint fixing was the weakest since Dec 25, 2019.

"In the short term, development of China's virus epidemic will continue to affect the yuan's movements," analysts at OCBC Wing Hang Bank said in a note early on Thursday.

REUTERS