SHANGHAI, July 20 (Reuters) - The yuan traded lower at midday after swinging in a tight range around the critical 7 per dollar level on Monday morning, as ongoing Sino-U.S. tensions pressured sentiment but investors were yet to gauge any substantive actions.
China's embassy in Myanmar on Sunday accused the United States of "outrageously smearing" the country and driving a wedge with its Southeast Asian neighbors over the contested South China Sea and Hong Kong, reflecting the increasingly fraught relations between the superpowers.
Yuan traders said recent news headlines suggested that tensions between the world's two largest economies were escalating, but impact on the currency remained limited as neither side mentioned they would break the Phase 1 trade deal.
"The trend of a weaker dollar has not yet changed significantly, as long as the Sino-U.S. trade agreement is not substantially disrupted, market's optimistic expectations for the yuan will sustain," analysts at China Construction Bank (Asia) said in a note.
They said they still see upside room for the yuan after some short-term correction.
The onshore yuan CNY=CFXS opened at 6.9933 per dollar and was changing hands at 6.9945 at midday, 30 pips weaker than the previous late session close.
Prior to market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 6.9928 per dollar, 115 pips or 0.16% firmer than the previous fix of 7.0043.
Several yuan traders said much of their focus was on the European Union Summit, where leaders were haggling over a plan to revive economies laid low by the coronavirus pandemic.
The decision could affect the euro and other major currencies' movements.
Separately, the yuan was little reacted to the news that China kept its benchmark lending rate steady for the third straight month, matching market expectations, amid signs that the world's second-largest economy is recovering from the shock coronavirus pandemic.
The yuan market at 0400 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% from official midpoint rate it sets each morning.
OFFSHORE CNH MARKET