Yuan jumps to month high on US trade deal optimism

SHANGHAI, Oct 27 (Reuters) - China's yuan jumped to a more-than-one-month high against the dollar on Monday, boosted by positive developments around trade relations between Beijing and Washington.

The Chinese currency, traded both onshore and offshore, strengthened past the psychologically important 7.11 per dollar to levels last seen in September after top Chinese and U.S. economic officials hashed out on Sunday the framework of a trade deal for U.S. President Donald Trump and Chinese President Xi Jinping to decide on later this week.

"This raises hopes the 100% increase in U.S. tariffs on China due November 1 can be avoided," said Paul Mackel, global head of FX research at HSBC.

"In return, China is meant to increase its purchases of U.S. soybeans, restrict fentanyl supply and delay its rare earth export controls for another year. After a tense few weeks of U.S.-China trade tensions, there are signs of a thaw."

The trade optimism also drove China and Hong Kong stocks higher. .SS

Sentiment was also underpinned by the central bank persistently guiding the market higher by setting the official midpoint firmer than expected, currency traders and analysts said.

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 7.0881 per dollar, its strongest since October 15, 2024, and 265 pips firmer than a Reuters estimate CNY=RTRS of 7.1146.

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

"China has seen fit to basically fix the CNY at the strongest level in over a year. Whether or not that means FX was part of the discussions over the weekend, I think it's possibly more than mere coincidence," said Ray Attrill, head of FX strategy at National Australia Bank.

In the spot market, the onshore yuan CNY=CFXS rose to a high of 7.1083 per dollar, the strongest level since September 18, before trading at 7.1128 as of 0350 GMT.

By 0350 GMT, the yuan CNY=CFXS was 0.12% higher at 7.1128.

Its offshore counterpart CNH=D3 followed suit and advanced to a high of 7.1091, the strongest since September 19. It last fetched 7.1133 as of 0350 GMT.

However, gains were trimmed as major state-owned banks stepped into the onshore spot market to purchase dollars and sell yuan, traders said, to prevent the currency from appreciating too rapidly.

Separately, attention will shift to the Financial Street Forum in Beijing later this week, where a series of top financial regulators, including PBOC Governor Pan Gongsheng, are expected to make speeches.

LEVELS AT 0350 GMT: