As of midday, the yuan has lost 1.6% against the greenback this week, marking its worst weekly loss since June 2018. Onshore spot yuan was trading at 7.0512 per dollar, down less than 0.1% on the day.

China let the yuan slide past the key 7 per dollar level on Monday for the first time since 2008, shortly after the United States threatened to slap the remaining $300 billion of Chinese goods with 10% tariffs. In the offshore market, the yuan crossed the 7 barrier for the first time ever.

Reuters forecasts show that the CFETS yuan index, which measures it against a basket of currencies, also broke a new low of 91.83 on Friday.

The People's Bank of China set the mid-point , which limits the yuan's onshore movement, at 7.0136 per dollar, 97 pips weaker than the previous fix and at the lowest since 2008 for a second consecutive session.

The fixing was still stronger than what traders expected, with market participants increasingly starting to see the yuan trading around a new normal of 7.

"By and large, the market has digested this," said one trader in Shanghai with a foreign bank. "It doesn't mean the currency won't bounce back, though in the short term, there are still a lot of risks and uncertainty in the trade talks."

Washington is delaying a decision about licences for U.S. firms to restart trade with Huawei Technologies [HWT.UL], according to Bloomberg, while U.S. Senator Marco Rubio urged the White House on Thursday not to allow exception to the ban.

A second Shanghai-based trader said trade talks that were scheduled for September in Washington, prior to the latest U.S. tariff threat, now seem unlikely, adding further pressure on the Chinese currency.

But as the U.S. Federal Reserve carries on lowering interest rates and widening the gap between U.S. and Chinese interest rates, the yuan may climb back to the stronger side of 7 per dollar, according to Ji Tianhe, China head of foreign exchange and local markets strategy at BNP Paribas in Beijing.

"Interest rate differential was an important factor leading the yuan depreciation against the dollar last year as yields between China and the United States shrunk sharply," he said.

The yield gap between Chinese and U.S. benchmark 10-year government bonds stood at 134 basis points on Friday morning, compared with a low of 28 basis points hit in November. A wider yield gap could mean less capital outflow pressure from China and is supportive for the Chinese currency.

The Fed trimmed rates by 25 basis points for the first time since the financial crisis last week. China did not immediately follow and kept its main policy rates the same. Markets are pricing in another Fed cut of the same size next month, and another identical move the month after.

The offshore yuan was trading 0.34 percent weaker than the onshore spot at 7.0754 per dollar.

The global dollar index <.DXY> fell slightly to 97.556 from the previous close of 97.618.


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(Reporting by Noah Sin and Winni Zhou; Additional reporting by Jindong Zhang in SHANGHAI; Editing by Jacqueline Wong)