(Updates closing price)
SHANGHAI, Aug 18 (Reuters) - The yuan stood at its strongest in nearly seven months by the end of onshore trading on Tuesday, with investors relieved that a U.S.-China trade deal appeared intact despite rising political frictions on a host of other issues.
A weekend review of the trade agreement was postponed to give China more time to ramp up its purchases of U.S. goods, but White House trade adviser Peter Navarro told media on Monday that the Phase 1 trade deal was still on track.
The spot yuan ended the domestic trading session at 6.9257 per dollar, its strongest close since Jan. 22. The offshore yuan stood at an over five-month high of 6.9200 around 0835 GMT, up 0.18% on the day.
The latest gains meant the onshore spot yuan has recovered all the value it lost after the coronavirus epidemic in Wuhan forced authorities to lockdown the city on Jan. 23.
Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at a new five-month high of 6.9325 per dollar, 37 pips or 0.05% firmer than the previous fix of 6.9362. Tuesday’s guidance rate was the strongest since March 9.
“If the trade deal is implemented smoothly, the yuan will continue to take advantage of sound economic fundamentals and widened yield gap between China and the United States to rise towards the 6.9 per dollar level in the mid- to long-term,” analysts at China Construction Bank (Asia) said in a note.
But they went on to warn that “if Sino-U.S. relations take a sudden turn for the worse, the yuan could fall back to 7.”
The Trump administration on Monday announced it will further tighten restrictions on Huawei Technologies Co, aimed at cracking down on its access to commercially available chips.
Separately, global markets were anxiously awaiting the minutes of the U.S. Federal Reserve’s last policy meeting, which are due for release on Wednesday.
The dollar was weaker against most major currencies on Tuesday, due to declining yields, soft U.S. economic data and reduced safe-haven demand for the greenback.
Reporting by Winni Zhou and Andrew Galbraith; Editing by Kim Coghill
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