Yuan firms on strong PBOC fixing despite US-Sino tensions

HONG KONG, Oct 15 (Reuters) - The yuan firmed against the U.S. dollar on Wednesday as Beijing signaled its commitment to currency stability despite mounting domestic economic pressures and simmering U.S.-China trade tensions.

The People's Bank of China set the midpoint rate CNY=PBOC at 7.0995 per dollar, its strongest since November 6 and a breakthrough of the closely watched 7.1 level.

The onshore yuan CNY=CFXS strengthened to a one-week high of 7.1252 per dollar before paring some gains. The offshore yuan traded at 7.1287 yuan CNH=, up about 0.16% in Asian trade.

The currency strengthened despite persistent trade worries. U.S. President Donald Trump suggested cutting some trade ties with China, including cooking oil imports, the latest in a week-long series of tit-for-tat moves between the world's two largest economies.

Meanwhile, the European Union said it plans to partner with the U.S. and other G7 countries to counter Beijing's tighter controls on rare earth exports, risking further tensions between China and the West.

Goldman Sachs analysts said Beijing is unlikely to weaken the currency to counter tariff measures due to fears of capital outflows, noting the country's significant manufacturing competitiveness remains intact.

"China's risk reward of allowing currency weakness is not compelling," they wrote, adding that stance is unlikely to change near-term.

The central bank has been gradually guiding its daily yuan fixing lower by roughly 200-300 pips per month from May to August, a policy push for the Chinese currency to catch up with its peers amid a weaker dollar environment, according to Goldman.

The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

At home, deflationary pressures persisted, with both consumer and producer prices falling in September, official data showed on Wednesday, as a prolonged property market downturn and trade tensions weighed on consumer and business confidence.

China will keep the yuan exchange rate broadly stable at reasonable and balanced levels, a central bank-backed publication quoted a bank official as saying on Tuesday.

The dollar's six-currency index =USD was 0.185% lower at 98.88 after comments from Federal Reserve Chair Jerome Powell bolstered wagers on an interest rate cut this month.

Key onshore vs offshore levels: Overnight dollar/yuan swap onshore -5.16 pips vs. offshore -5.16 Three-month SHIBOR SHIBOR= 1.6 % vs. 3-month CNH HIBOR 1.8 %