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China's yuan firms on stronger fixing; FOMC meeting watched

    SHANGHAI, Sept 14 (Reuters) - China's yuan firmed on Monday
after the country's central bank set a stronger fixing for the
currency's daily trading band, but analysts and traders said
they were watching an upcoming meeting of the U.S. Federal
Reserve for cues to future direction.
    Monday's gains followed a seventh straight week of gains for
the yuan, its longest since early 2018.
    Before the market opened, the People's Bank of China (PBOC)
set the yuan's midpoint rate at 6.8361 per dollar
prior to market open, firmer than the previous fix of 6.8389. 
    Spot yuan opened at 6.8251 per dollar and inched
to a top of 6.8250 before trimming gains to 6.8304 by midday, 44
pips stronger than Friday's late session close. 
    The offshore yuan strengthened to 6.8295 per dollar
at midday, from 6.8330 on Friday. 
    Traders did not expect any major move in the exchange rate
before the outcome of the Federal Open Market Committee (FOMC)
is set to meet on Tuesday and Wednesday. It is the first meeting
since Fed Chair Jerome Powell pledged to keep interest rates
anchored even if inflation ran above the 2% target for a
considerable period.      
    "We're waiting to see the Fed's decision ... If the dollar
index moves, the yuan will follow," said a trader at a Chinese
bank. 
    The global dollar index fell to 93.204 on Monday from
the previous close of 93.267, while the Thomson Reuters/HKEX
Global CNH index, which tracks the offshore yuan against
a basket of currencies on a daily basis, stood at 93.45, firmer
than the previous day's 93.41. 
    Li Liuyang, chief FX analyst at China Merchants Bank's
financial markets department said the a correction in global
risk assets this month and an uptick in the dollar followed an
excessive risk rally, and that a rebound in global COVID-19
cases had prompted worries about the impact on the global
economic recovery.
    But he said that if central banks maintain an environment of
loose liquidity, it was unlikely that markets would see a repeat
of the falls in risk assets in March.   
    "A dollar rebound will be limited, and when the dollar
starts to fall again, the yuan is likely to start a second round
of appreciation," he said. 
    
    The yuan market at 4:04AM GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.8361   6.8389    0.04%
                                       
 Spot yuan          6.8304   6.8348    0.06%
                                       
 Divergence from    -0.08%             
 midpoint*                             
 Spot change YTD                       1.94%
 Spot change since 2005                21.17%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         93.45       93.41     0.0
 Reuters/HKEX                          
 CNH index                             
 Dollar index    93.204      93.267    -0.1
 
    
    
*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    6.8295    0.01%
        *                        
 Offshore              6.9857    -2.14%
 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 Andrew Galbraith and Jindong Zhang)
  
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