China's yuan pulls back, trade row keeps markets wary

SHANGHAI, April 22 (Reuters) - China's yuan slipped to the weakest level in a week against the dollar on Tuesday as traders remained wary about the economic risks of an escalating trade war between the world's two biggest economies.

The focus will be on which country will prevail in the economic "resilience game", Nanhua Futures said in a note to clients, expecting the yuan to move sideways this week.

The dollar selloff took a breather in Asian trading, renewing pressure on the yuan. But investor confidence in U.S. assets remains fragile as President Donald Trump’s threats to fire Federal Reserve Chair Jerome Powell add to the market turmoil wrought by the administration's sweeping tariff policies.

The onshore yuan CNY=CFXS was trading around 7.30 per dollar at midday, 0.2% weaker than the previous close.

The dollar index .DXY stabilised somewhat after dropping to its lowest level in three years the previous session after Trump's unrelenting attacks on Powell sparked another rush out of U.S. assets.

"The Fed's independence is a cornerstone of U.S. economic credibility," DBS strategist Philip Wee said, explaining the dollar's recent slide.

"Further losses cannot be ruled out if Trump's policies undermine the credibility painstakingly rebuilt after the global financial crisis."

China, meanwhile, is stepping up efforts to do more trade with other countries in the face of punitive U.S. tariffs on its goods.

On Monday, China released a guideline for improving the country's pilot free trade zones (FTZs) in an effort to further open up global two-way trade.

Beijing also announced steps to improve cross-border financial services in commercial hub Shanghai, including plans to promote cross-border yuan payment.

"The trust in the dollar as a global currency is being weakened," Nanhua Futures analyst Zhou Ji said in a roadshow.

However, "the yuan is also under depreciation pressure against the dollar" due to the escalating trade row with Washington.

The brokerage expects the yuan to trade around 7.3 per dollar in the near term as China's central bank continues efforts to steady the currency.