China's offshore yuan slips after Trump backs Hong Kong protesters
SHANGHAI, Nov 28 (Reuters) - China's offshore yuan eased on Thursday, defying the central bank's firmer market guidance as investors worried about the impact of Hong Kong tensions on Sino-U.S. trade negotiations.
U.S. President Donald Trump on Wednesday signed into law legislation backing protesters in Hong Kong despite angry objections from Beijing, with whom Washington is seeking to end a damaging trade war.
The legislation requires the U.S. State Department to certify that Hong Kong retains enough autonomy to justify favourable U.S. trading terms that have helped the territory grow as a world financial center. It also threatens sanctions for human rights violations.
In response, China warned it would take "firm counter measures" in response to the U.S. legislation and said attempts to interfere in the former British colony were doomed to fail.
A trader at a foreign bank said while Trump's signing of the bills was expected, the market's main concern is what impact it would have on trade negotiations.
Prior to market open, the People's Bank of China set the midpoint rate CNY=PBOC at a one-week high of 7.0271 per dollar, firmer than the previous fix of 7.0349.
The offshore yuan CNH=D3 was trading at 7.0260 as of midday, 101 pips weaker than the previous close of 7.0165.
In the spot market, onshore yuan CNY=CFXS opened at 7.0290 per dollar and was changing hands at 7.0277 at midday, little changed from the previous late session close.
Ken Cheung, chief Asian FX strategist at Mizuho Bank, said in a report the modest onshore yuan reaction reflected investors' expectation that the U.S. law would not derail China-US trade talks from the time being.
The global dollar index .DXY fell to 98.349 from the previous close of 98.37.
The yuan market at 4:20AM GMT:
PBOC midpoint CNY=SAEC
Spot yuan CNY=CFXS
Divergence from midpoint*
Spot change YTD
Spot change since 2005 revaluation
Thomson Reuters/HKEX CNH index
*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 percent from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET
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