Yuan rebounds as markets assess Trump tariff threats, Fed outlook

SHANGHAI, July 10 (Reuters) - China's yuan firmed against the dollar on Thursday, recovering from a two-week low hit overnight as investors considered renewed U.S. tariff threats from President Donald Trump and the Federal Reserve's rate-cut trajectory.

Trump launched his global tariff assault into overdrive on Wednesday, announcing a new 50% levy on U.S. copper imports and a 50% duty on goods from Brazil, both to start on August 1.

The offshore yuan CNH=D3 eased to a two-week low of 7.1881 per dollar on the news as investors reassessed the possibility of larger-than-expected tariffs on China but quickly reversed course as the dollar eased.

The dollar index .DXY fell 0.2% to 97.38 on Thursday, retreating from a two-week high, following a strong auction of 10-year notes.

"USD could still get some reprieve against Asian FX, with short USD trade looking somewhat crowded from a positioning perspective," said analysts at MUFG in a note.

"Ultimately, markets may place more weight on the future path of fed funds rate, which could shape the outlook for the USD," they said.

Only "a couple" of officials at the Federal Reserve's June 17-18 meeting said they felt interest rates could be reduced as soon as this month, with most policymakers remaining worried about the inflationary pressures from Trump's use of tariffs to reshape global trade.

The spot yuan CNY=CFXS opened at 7.1755 per dollar and was last trading at 7.177 as of 0320 GMT, 45 pips firmer than the previous late session close and 0.36% weaker than the midpoint.

Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 7.1510 per dollar, 247 pips firmer than a Reuters' estimate.

Becky Liu, head of Greater China strategy at Standard Chartered, said the yuan is likely to see moderate depreciation in the second half of the year, weighed by subdued economic momentum, a still-wide U.S.-China yield gap amid continued PBOC easing, softening export prospects, and limited policy incentive to support currency strength.

"The potential size of capital outflows following recent liberalisation on QDII, Southbound bond connect, Payment connect – will likely to curb further appreciation of the CNY," she said.

The offshore yuan traded at 7.1804 yuan per dollar CNH=, up about 0.06% in Asian trade.

LEVELS AT 0320 GMT