SHANGHAI: China's yuan inched lower against the U.S. dollar on Wednesday, reflecting strength in the greenback after upbeat data eased worries about the American economy.
Sentiment was also dampened by renewed worries over tensions on the Korean Peninsula on reports that North Korea is rebuilding part of a test rocket site.
Yuan losses were light, however, as the 10-day long annual meeting of China's parliament entered its second day. Chinese authorities traditionally keep the renminbi stable during major economic and political events.
Prior to the market opening on Wednesday, the People's Bank of China (PBOC) set the midpoint rate at 6.7053 per dollar, 55 pips or 0.08 percent weaker than the previous fix of 6.6998.
In the spot market, onshore yuan opened at 6.7050 and was changing hands at 6.7160 at midday, 72 pips weaker than the previous late session close and 0.16 percent softer than the midpoint.
Two traders said some renewed North Korea worries had forced some yuan investors cover their short positions in the greenback. South Korea's Yonhap News Agency and two U.S. think tanks reported on Tuesday that North Korea has restored part of a missile launch site it began to dismantle after pledging to do so in a first summit with U.S. President Donald Trump last year.
"It triggered a USD/CNH short squeeze, and led the onshore yuan lower," said a trader at a Chinese bank in Shanghai.
The offshore yuan was at 6.725 per dollar as of midday.
Separately, a new Reuters poll showed most currency analysts have upgraded their forecasts for the yuan from last month, amid further signs of progress in talks to end the U.S.-China trade war.
The poll, issued on Wednesday, showed most analysts now believe the yuan will trade around current levels of 6.70 in a year's time. Just two months ago, most had predicted it would fall through the closely watched 7-per-dollar level in the face of a weak dollar and China's weakening economy.
"The short-term outlook continues to be overshadowed by the trade dispute between the USA and China. A trade agreement is now considered likely, but we want to wait for the exact details of an agreement before drawing more precise conclusions for the renminbi and the Chinese economy," Zhou Hao, analyst at Commerzbank in Singapore said in a note.
A pledge by China's state planner on Tuesday to increase the flexibility of the yuan's exchange rate set off market speculation that a tweak to official wording could mean changes to the country's tightly managed currency regime.
Apart from other demands on trade and reforms, U.S. negotiators are believed to be pressing for assurances China will not devalue the yuan.
The global dollar index rose to 96.97 at midday, from the previous close of 96.866.
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