FOREX-Dollar loses out, yuan soars amid doubts about U.S. economy

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Dollar loses out amid doubts about U.S. economy
* U.S.-China friction does not stop yuan bulls
* Yuan returns to pre-Wuhan lockdown levels
* Euro may gain amid focus on manufacturing data

By Stanley White
TOKYO, Aug 21 (Reuters) - The dollar was on the defensive
against most currencies on Friday after a rise in U.S. jobless
claims and a dip in Treasury yields dampened the appeal of
holding the greenback.
The yuan jumped to a seven-month high against the dollar,
showing that even U.S.-Sino diplomatic tension was not enough to
deter traders who are bullish on China's economic outlook.
The euro, which has been the biggest beneficiary of a recent
decline in the dollar, will come into focus later on Friday as
traders brace for euro zone manufacturing data.
A larger-than-expected rise in weekly U.S. jobless claims
came just one day after Fed officials warned that a recovery in
hiring is starting to slow, raising doubts about how quickly the
world's largest economy will bounce back from the coronavirus.
Concern about the U.S. economy, combined with an excess
supply of dollars already in circulation due to the Fed's
massive quantitative easing, are likely to weigh on the U.S.
currency in coming weeks, analysts say.
"Sentiment for the dollar is weak, reflecting all the QE and
the decline in real U.S. yields," said Tsutomu Soma, a credit
trader at Monex Securities.
"On the flip side, the euro is strong because Europe has
already put a firm backstop in place to support economic growth,
which has boosted confidence in the euro and euro-zone bonds."
The dollar stood at $1.1867 per euro EUR=D3 on Friday in
Asia following a 0.2% decline in the previous session.
The British pound GBP=D3 bought $1.3229, holding onto a
0.8% gain made on Thursday.
The dollar also nursed losses against the safe harbour Swiss
franc CHF=D3 , last trading at 0.9074 in Asia on Friday.
The onshore yuan CNY=CFXS rose to 6.8969 per dollar, the
highest since Jan. 22. Offshore, the yuan CNH=D3 briefly hit
6.8935, its strongest since Jan. 21.
China's currency has recovered all of its losses since the
central Chinese city of Wuhan, where the coronavirus first broke
out, was first put on lockdown.
The greenback was quoted at 105.72 yen JPY=D3 after a 0.3%
decline on Thursday.
The number of Americans filing new claims for unemployment
benefits unexpectedly rose back above the 1 million mark last
week, data showed on Thursday in a setback for a U.S. job market
that has been crippled by the coronavirus pandemic. A slight decline in Treasury yields US10YT=RR was another
factor working against the greenback.
The dollar index =USD against a basket of six currencies
was on course for its ninth consecutive weekly decline.
Sentiment for the dollar and risk assets like equities had
already taken a hit after dovish minutes from the Fed's most
recent meeting, which were released on Wednesday. Traders in the euro are looking ahead to the release later
Friday of manufacturing data for the euro zone and for Germany,
Europe's largest economy.
The growing consensus is the euro will continue to edge
higher because European governments have taken decisive action
on stimulus measures to support growth.
In comparison, U.S. Republicans and Democrats are still at
loggerheads over additional economic stimulus, which analysts
said is another reason to favour the euro over the dollar.
Elsewhere in currencies, the Australian dollar AUD=D3
edged up to $0.7202, while the New Zealand dollar NZD=D3 held
steady at $0.6539.