Yuan retreats after touching month high, weak services activity dampens

SHANGHAI: China's yuan briefly touched a one-month high against a softer dollar before giving up all the gains by midday on Friday, pressured by a disappointing services activity survey.

Traders say they are awaiting US non-farm payrolls due later in the session for more clues on when the Federal Reserve may begin to taper stimulus.

The People's Bank of China set the midpoint rate at 6.4577 per dollar prior to market open, the strongest since June 29 and firmer than the previous fix of 6.4594.

Yuan eases as markets await non-farm payrolls

In the spot market, the yuan opened at 6.4530 per dollar and was changing hands at 6.4598 at midday, 37 pips weaker from the previous late session close.

A private survey on Friday showed that activity in China's services sector slumped into sharp contraction in August, following data earlier this week which showed a slowdown in the manufacturing sector.

Worries over economic downside pressure weighed on sentiment and outweighed the support from a weakened dollar index, a trader from a foreign bank said.

Investors anticipate that Beijing will accelerate fiscal spending and credit growth as its economic recovery slows, but that such measures will be finely targeted as the Fed prepares to taper its own stimulus.

Traders are closely eyeing US non-farm payrolls data for more clues on the timing and pace of Fed tapering, as Fed Chair Jerome Powell said last week an improvement in the employment numbers would determine the timing of the action.

US data on Thursday showed layoffs dropped to their lowest in more than 24 years. However, the ADP report on Wednesday showed US private employers hired far fewer workers than expected in August.

The global dollar index fell to 92.212 from the previous close of 92.227, while the offshore yuan was trading 0.09% away from the onshore spot at 6.4537 per dollar.