SHANGHAI, July 18 (Reuters) - The Chinese yuan
strengthened against the U.S. dollar on Thursday, capitalising
on an overnight retreat of the greenback, while market
participants awaited news from a key leadership gathering in
Beijing.
    The U.S. dollar stood near its weakest in four months
against a basket of currencies as comments from Federal Reserve
officials bolstered the case for a rate cut in September.
    Prior to the market opening, the People's Bank of China
(PBOC) set the midpoint rate, around which the yuan
is allowed to trade in a 2% band, at 7.1285 per dollar, its
strongest since July 1 and 1,302 pips firmer than a Reuters
estimate.
    As of 0305 GMT, the spot yuan opened at 7.2559
per dollar and was last trading 39 pips firmer than the previous
late session close at 7.2597 and 1.84% weaker than the midpoint.
    Also helping the yuan is a stronger yen. The yen
hit a six-week high against the dollar in early trading after a
sharp rise on Wednesday that had traders suspecting Japanese
authorities were once again in the market supporting the
currency. 
    The dollar index fell below the 104 mark, influenced
by a notably steep decline of the dollar against the yen during
late Asian trading hours, said analysts from Maybank. 
    They also referred to U.S. presidential candidate Donald
Trump's comments in an interview with Bloomberg Businessweek on
the weakness of the yuan and the yen.  
    Despite the offshore yuan strengthening against the dollar
overnight, traders at UBS saw hedge funds taking the opportunity
to put on post-election dollar-higher trades.
    The yuan is 2.2% weaker against the dollar this year. It has
been under pressure since early 2023 as domestic woes around a
moribund property sector, anaemic consumption and falling yields
drive capital flows out of yuan, and foreign investors stay away
from its struggling stock market.
    Meanwhile, investors are watching closely for policy
announcements likely coming out later in the day from the Third
Plenum, a top leadership gathering, though it is expected to
focus more on longer-term economic and social issues. 
    China's Communist Party Central Committee will hold a news
conference on Friday on the meeting.
    The dollar's six-currency index was 0.096% higher at 
103.77.
    The offshore yuan traded at 7.2732 per dollar, down
about 0.01% in Asian trade.
    
   
    
Key onshore vs offshore levels:
    • Overnight dollar/yuan swap onshore -8.50 pips vs. offshore
-8.50
    • Three-month SHIBOR 1.9 % vs. 3-month CNH HIBOR
3.3 % 
 
LEVELS AT 03:05 GMT 
 INSTRUMENT     CURREN  UP/DOWN(-)  % CHANGE   DAY'S    DAY'S 
                T vs    VS.         YR-TO-DAT  HIGH     LOW
                USD     PREVIOUS    E                   
                        CLOSE %                         
 Spot yuan      7.2597        0.03      -2.17   7.2555    7.2599