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Yuan up slightly as markets take U.S. inflation spike in stride

    SHANGHAI, June 11 (Reuters) - China's yuan inched up on
Friday and looked set for a marginal weekly gain as the dollar
failed to get a lift from accelerating U.S. inflation, with
markets largely agreeing with the Federal Reserve that rising
consumer prices will be transitory.      
    Data overnight showed annual U.S. consumer prices rose the
most in nearly 13 years as a reopening economy boosted demand
for travel-related services, and one-off factors provided enough
reasons for traders to go along with the Fed's narrative.

    Prior to market opening, the People's Bank of China (PBOC)
set the midpoint rate at a one-week high of 6.3856
per dollar, 116 pips or 0.18% firmer than the previous fix of
6.3972. 
    In the spot market, onshore yuan opened at 6.3853
per dollar and was changing hands at 6.3868 at midday, 60 pips
firmer than the previous close, and is set to finish the week
with modest gains.
    Investors are now expected to switch their attention to the
Fed's policy meeting next week for clues on changes to monetary
policy, traders say. Any shift in policy rhetoric could stoke
volatility in major currencies.
    "Both yuan and the dollar were likely to continue trading in
ranges before the Fed meeting," said a trader at a foreign bank.
    He said that Chinese regulators have also taken a sanguine
approach to domestic inflation, and recent comments around the
yuan should stabilise the markets for the time being.
    PBOC Governor Yi Gang told a financial forum a day earlier
that inflation is "basically under control" and the central bank
would keep the yuan exchange rate basically stable.
    The yuan has recently raised eye brows, as it has risen
sharply by around 12% against the dollar since May 2020 and hit
its strongest levels in more than three years.
    "PBOC Governor Yi Gang reaffirmed that the current level of
accommodation is appropriate," Win Thin, global head of currency
strategy at Brown Brothers Harriman, said in a note.
    Separately, official data showed that China's foreign
exchange deposits continued to grow and hit a record high of
$1.01 trillion at the end of May, boosted by huge trade surplus
and continued capital inflows into Chinese stocks and bonds.

    By midday, the dollar index measured against a basket
of key currencies fell to 89.994 from the previous close of
90.074, while the offshore yuan was trading at 6.382
per dollar. 
    
    The yuan market at 0400 GMT: 
    
    ONSHORE SPOT:
 Item               Current  Previous  Change
 PBOC midpoint      6.3856   6.3972    0.18%
                                       
 Spot yuan          6.3868   6.3928    0.09%
                                       
 Divergence from    0.02%              
 midpoint*                             
 Spot change YTD                       2.22%
 Spot change since 2005                29.59%
 revaluation                           
 
    Key indexes:
     
 Item            Current     Previous  Change
                                       
 Thomson         97.81       97.92     -0.1
 Reuters/HKEX                          
 CNH index                             
 Dollar index    89.994      90.074    -0.1
 
    
    
*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   
  
 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.382     0.08%
        *                        
 Offshore              6.5419    -2.39%
 non-deliverable                 
 forwards                        
               **                
 
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.
.     
    

 (Reporting by Winni Zhou and Andrew Galbraith
Editing by Shri Navaratnam)
  
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