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SHANGHAI: China's yuan edged up on Thursday on corporate demand, while gains were limited, with traders awaiting the US inflation data later in the day to get more clues about the pace of the Federal Reserve's monetary tightening.

The People's Bank of China set the midpoint rate at 6.3599 per dollar prior to market open, firmer than the previous fix 6.3653.

In the spot market, the yuan opened at 6.3619 per dollar and was changing hands at 6.3583 at midday, 41 pips stronger from the previous late session close.

China's yuan inches higher but gains capped by weak stocks

"We reckon that the Fed's rate hike decision will be data dependent, and incoming CPI and labour data will be eventful," Ken Cheung, Asian FX strategist at Mizuho Bank, said in a note.

According to economists polled by Reuters, a 0.5% month-over-month increase of US consumer price index data in January and 7.3% for the year are expected. Higher-than expected numbers could would signal more aggressive interest rate increases.

Markets are widely expecting a 25 basis point interest rate increase by the Federal Reserve at its March meeting, and some are talking up the possibility of a larger 50 basis point jump.

"The dollar index is likely to remain range bound given the largely expected rate hike," said a trader at a foreign bank.

If the data doesn't deviate much from expectations, moves by the European Central Bank will be further monitored, the trader added.

China Construction Bank expected the yuan to trade between 6.32 and 6.43 per dollar in February and said the currency would face depreciation pressure during the first half in 2022, citing domestic growth pressure, fading corporate demand and divergent policy expectations between China and the US.

The Biden administration is considering a new China tariff probe if current talks do not persuade Beijing to follow through on its promised purchases of US goods, energy and services, officials from the largest US business lobbying group said on Wednesday.

The global dollar index rose to 95.522 from the previous close of 95.494.

The offshore yuan was trading at 6.3624 per dollar.

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