Yuan edges lower as traders weigh Iran war developments

SHANGHAI, March 24 (Reuters) - China's yuan eased against the U.S. dollar on Tuesday as the greenback clawed back overnight losses, with traders digesting conflicting news headlines about the war in the Middle East.

The yuan had rebounded from a two-week low on Monday after U.S. President Donald Trump said he was postponing for five days a plan to hit Iran's energy grid, citing what he called productive talks with senior Iranian figures. Tehran denied any negotiations were taking place.

"We would remain cautious on the path forward especially for Asia's currency and rates markets, both because of the substantial scale of economic disruption and possible physical energy shortages already arising from the Strait of Hormuz closure to our region, and also because of the difficulty of negotiations moving forward, even as the left tail risk of a destructive scenario has perhaps been avoided for now," analysts at MUFG wrote in a note.

The spot yuan CNY=CFXS opened at 6.8890 per dollar and was last trading at 6.8928 as of 0230 GMT, 133 pips lower than the previous late session close.

The dollar index =USD, which measures the greenback against a basket of six currencies, was 0.14% higher at 99.31, having jumped nearly 2% this month as the broadening conflict triggered a rush for haven assets.

Prior to the market opening, the People's Bank of China set the midpoint rate CNY=PBOC at 6.8943 yuan per dollar, 103 pips weaker than a Reuters' estimate. The spot yuan is allowed to trade 2% either side of the fixed midpoint each day.

Analysts at Industrial and Commercial Bank of China (Asia) said lingering geopolitical risks are clouding the outlook for energy prices and stoking U.S. stagflation concerns.

"Markets now expect the Federal Reserve to delay rate cuts, lifting U.S. Treasury yields. That backdrop highlights the cost advantage of renminbi bond issuance, and dim sum bonds are likely to remain in favor with international investors," they said.

The 10-year U.S. Treasury yield premium over China's government bond widened to about 255 basis points on Tuesday, hovering near the largest gap since August 2025.

LEVELS AT 0230 GMT