China's yuan firms as PBOC tightens grip on currency fix

SHANGHAI, March 27 (Reuters) - The yuan firmed against the dollar on Thursday, as the People's Bank of China tightened its grip on the official daily fix and President Donald Trump showed some flexibility in reducing tariffs on China.

However, the outlook for the yuan remained bearish in the wake of rising headwinds, including from rising tensions with the U.S. as Trump on Wednesday pressed on with new tariffs on all auto imports.

Prior to the market opening, the PBOC set the midpoint rate CNY=PBOC, around which the yuan is allowed to trade in a 2% band, at 7.1763 per dollar, 965 pips firmer than a Reuters' estimate, marking the largest gap in over three weeks.

Analysts at Bank of America maintained a bearish yuan outlook due to tariff risks but adjusted their second-quarter forecast to 7.5 per dollar from 7.6, as the PBOC continued to set a stronger-than-expected daily fix.

Elsewhere, Trump said on Wednesday he would be willing to reduce tariffs to get a deal done with TikTok's Chinese parent ByteDance to sell the short video app used by 170 million Americans.

"It's definitely not bad news, but the uncertainty is still high," said Liang Ding, an economist and strategist at research firm Macro Hive.

China's offshore yuan CNH=D3 firmed in the morning after weakening for seven straight days.

Market participants were cautiously awaiting Trump's reciprocal tariffs deadline on April 2 to assess the shifting risks for the Chinese currency.

"Proposals from the Secretary of Commerce and the U.S. Trade Representative regarding China's Permanent Normal Trade Relations (PNTR) status could introduce further uncertainties to the long-term economic relationship between the two countries," Ding said.

The dollar index .DXY rose to a 3-week high overnight as investors worried the new duties on auto imports will reignite inflation.

The spot yuan CNY=CFXS opened at 7.2663 per dollar and was last trading 71 pips firmer than the previous late session close at 7.262 as of 0338 GMT and 1.19% weaker than the midpoint.

China's business environment remained dour, with industrial profits slipping in the first two months of 2025, as firms navigate persistent deflationary pressures and the escalating trade war with the United States.

The uneven economic recovery has reinforced expectations for more policy support. Huang Yiping, an advisor to China's central bank, said on Wednesday, that Beijing wields significant policy room to stimulate its economy this year while some reform was needed to boost consumption.

The offshore yuan traded at 7.2685 yuan per dollar CNH=, up about 0.15% in Asian trade.

LEVELS AT 0338 GMT