China's yuan slips on rising dollar buying interest, trade uncertainty weighs on sentiment

SHANGHAI, Feb 19 (Reuters) - China's yuan slipped against the dollar on Wednesday, dragged lower by rising buying interest in the greenback while investors remained cautious trade relations between the world's two largest economies.

The Chinese currency posted a wild swing over the past week, weakening to a three-week low before rebounding to a three-week high, and households and companies quickly took advantage of a pullback in the dollar to stock up on the cheaper greenback, traders said.

Looming tariff threats under U.S. President Donald Trump also weighed on market sentiment, traders and analysts said.

During Trump's first term as president, the yuan weakened more than 12% against the dollar during a series of U.S. and Chinese tariff announcements between March 2018 and May 2020.

"Due to the possibility of escalating tit-for-tat trade war with the U.S., we forecast USD/CNY to rise towards 7.40 by end-Q1 and 7.50 from Q2 onwards to reflect yuan weakness," said Tommy Wu, senior economist at Commerzbank.

As of 0244 GMT, the onshore yuan CNY=CFXS was 0.13% lower at 7.2828 to the dollar, compared with a three-week high of 7.2424 hit on Monday.

Its offshore counterpart CNH=D3 traded at 7.2840.

Before market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1705 per dollar, 1,102 pips firmer than a Reuters' estimate CNY=RTRS of 7.2807.

The central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders see as a sign of unease over the yuan's decline.

Separately, market attention will quickly shift to monetary policy stances in the United States and China, traders said.

The Federal Reserve is due to release its January meeting minutes later in the session, and investors will look for clues on how policymakers are weighing the risk of a global trade war. FRX/

Meanwhile, China is due to release its monthly fixing of loan prime rate (LPR) on Thursday.

Key onshore vs offshore levels:

• Overnight dollar/yuan swap onshore -5.38 pips vs. offshore -5.38
• Three-month SHIBOR SHIBOR= 1.8 % vs. 3-month CNH HIBOR 2.7 %

LEVELS AT 0244 GMT: