SHANGHAI: China's yuan edged up against the dollar on Wednesday, supported by growing optimism that the United States and China are drawing closer to an agreement to end their trade war.
The Financial Times reported that top officials from both sides had resolved most of the issues standing in the way of an agreement. But they are still haggling over how to implement and enforce a deal.
Traders said the report lifted the yuan in onshore and offshore markets.
The Chinese currency has been heavily affected by deteriorating trade relations since last April. It fell 5.3 percent against the dollar last year, but has recouped about 2.4 percent so far 2019, as the two sides stepped up negotiations.
Prior to the market opening on Wednesday, the People's Bank of China (PBOC) set the midpoint rate at 6.7194 per dollar, 33 pips or 0.05 percent weaker than the previous fix of 6.7161.
Spot yuan opened at 6.7150 per dollar. It rose to a high of 6.7095 before changing hands at 6.7109 at midday, 116 pips firmer than the previous late session close and 0.13 percent stronger than the midpoint.
Traders said the yuan was likely to remain confined to a tight range as the trade negotiations progress.
"For now, both sides seem determined to reach an agreement to avert the disastrous outcomes led by the trade war but they have to make larger compromises to bridge the gap," Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong said in a note.
But Cheung added it is still uncertain over whether a deal can be reached.
White House economic adviser Larry Kudlow said the United States and China "expect to make more headway" in trade talks this week, as the top US business lobbying group said differences over an enforcement mechanism and the removal of US tariffs were still obstacles to a deal.
A trader at a Chinese bank said the 6.7 level offered strong resistance for the yuan now, and some corporate clients still showed interest in loading up dollars when the spot rate approached that mark. Such dollar demand capped the gains in the yuan.
Separately, China's central bank is expected to cut banks' cash reserve requirements again soon to bolster financial system liquidity as it looks to support the slowing economy, analysts said, as market speculation over another policy move grows.
The global dollar index fell to 97.203 at midday from the previous close of 97.361.
The offshore yuan was trading at 6.7141 per dollar as of midday.
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