Yuan hits one-week high on stronger fix, eyes on Fed

SHANGHAI, Aug 21 (Reuters) - China's yuan firmed to a one-week high against the dollar on Thursday, after the central bank set its strongest daily guidance in nine months, while investors await cues from the Federal Reserve on the currency's near-term direction.

Prior to the market opening, the People's Bank of China (PBOC) set the yuan's daily midpoint at 7.1287 per dollar on Thursday, its strongest fixing since November 6, 2024, and firmer than the psychologically significant 7.13 level, underscoring the central bank's intent to support the currency.

The fix is 461 pips firmer than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

The spot yuan CNY=CFXS opened at 7.1777 per dollar and was last trading at 7.1729 as of 0248 GMT, 41 pips firmer than the previous late session close and 0.62% weaker than the midpoint.

The dollar drifted on Thursday as investors fretted about the Federal Reserve's independence after another attack from President Donald Trump ahead of remarks from Chair Jerome Powell later this week that could influence the outlook for rates.

"While Fed Chair Jerome Powell may offer policy signals at Jackson Hole that trigger short-term volatility, August trading is typically subdued with low volatility," said analysts at Nanhua Futures, adding that they expect more pronounced moves in September and October.

After continued criticism on Powell this week for refraining from cutting rates, Trump on Wednesday targeted Fed Governor Lisa Cook, demanding she resign amid allegations of wrongdoing connected to mortgages on properties she owns. Cook said she would take any questions about her financial history seriously and had no intention of stepping down.

"In the current environment of elevated external uncertainty and weak domestic recovery, the dollar/yuan spot rate is likely to stay within a 7.15 to 7.23 range in the near term," the analysts added. "Levels below 7.20 will probably remain the dominant trading zone."

China is considering allowing the usage of yuan-backed stablecoins for the first time to boost wider adoption of its currency globally, sources familiar with the matter said, in a major reversal of its stance towards digital assets.

The offshore yuan traded at 7.1767 yuan per dollar CNH=, up about 0.09% in Asian trade.

The dollar index =USD, which measures the U.S. currency against six peers, was 0.046% higher at 98.28.

LEVELS AT 0248 GMT