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SHANGHAI: China’s yuan edged higher against the dollar on Friday, following a strengthened official guidance rate, while implied volatility in the options market started to pick up ahead of the US Federal Reserve’s policy meeting next week.

Prior to the market opening, the People’s Bank of China (PBOC) set the midpoint rate at 6.7522 per dollar, 98 pips or 0.15% firmer than the previous fix of 6.7620.

In the spot market, the onshore yuan opened at 6.7660 per dollar and was changing hands at 6.7655 at midday, 25 pips firmer than the previous late session close.

Currency traders said the slight strength in the spot prices was guided by the midpoint fixing, though the market swung in a very thin range of 100 pips on Friday morning.

Many participants were unwilling to make huge bets on the yuan before the Fed’s policy meeting next week, when it is widely expected to deliver another 75-basis-point rate hike.

In the options market, implied volatility also picked up, with the one-week tenor jumping to the highest level in a month.

China is confident of resolving the impact of monetary policy tightening by the US Federal Reserve, the foreign exchange regulator reassured markets on Friday, adding it will closely monitor the pace of Fed policy adjustments, which could affect global financial markets.

Separately, some investors also said the market will closely monitor the July Politburo meeting next week, when China’s top decision-making body gathers to discuss economic policies for the rest of the year.

While economic activity in China is slowly recovering from a heavy COVID-induced hit in spring, infections are rising again and the property market is reeling from crisis to crisis.

“We are looking at the mid-year Politburo meeting for incremental measures to support investment amid the mortgage non-repayment saga,” Citi analysts said in a note, referring to the growing number of homebuyers who are refusing to make mortgage payments on unfinished apartments.

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