China's yuan slightly weakened against the dollar on Friday as it neared the end of a volatile week in which the Chinese central bank attempted to slow the pace of the currency's fall against a buoyant dollar. Traders awaiting fresh U.S. inflation data later in the day expect further downward pressure on the yuan, as well as rising volatility. The onshore spot yuan was changing hands at around 7.2270 per dollar at midday, slightly weaker than the previous late session close. Reflecting central bank efforts to stabilise the currency, the People's Bank of China set the midpoint rate almost flat before market open. At 7.095 per dollar, the fixing is more than 1,300 pips stronger than Reuters estimates. Guosheng Securities attributed the yuan's recent weakness mainly to dollar's strength.

The dollar index has rebounded sharply since mid-March and is up 3.2% so far this year. "In the short term, the yuan still faces downward pressure" as the central government "follows the trend", Guosheng analysts Xiong Yuan and Liu Xinyu said in a note. Yuan depreciation will negatively impact China's stock, bond and commodities markets, the brokerage said. But the analysts think a big drop in the yuan is unlikely given limited room for dollar strength, and the fact that "China's central bank will continue to exert certain control in the forex market." Signifying authorities' hand, the onshore yuan trades more than 300 pips stronger than the offshore yuan, whose value is decided more by market forces.

Traders are waiting for the release of the personal consumption expenditures price index in the U.S. later on Friday. The Federal Reserve's preferred gauge of inflation may have picked up pace in February, according to economists polled by Reuters, potentially giving another boost to the dollar. The yuan market at 4:05AM GMT: ONSHORE SPOT: Item Current Previous Change PBOC midpoint 0.00% 7.095 7.0948 Spot yuan -0.02% 7.2269 7.2256 Divergence from midpoint* 1.86% Spot change YTD -1.79% Spot change since 2005 revaluation 14.52% Key indexes: Item Current Previous Change Thomson Reuters/HKEX 0.0 CNH index Dollar index 104.615 0.1 104.546 *Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People's Bank of China (PBOC) allows the exchange rate to rise or fall 2% from official midpoint rate it sets each morning. OFFSHORE CNH MARKET Instrument Current Difference from onshore Offshore spot yuan * -0.43% 7.2578 Offshore non-deliverable 7.04 0.78% forwards ** *Premium for offshore spot over onshore **Figure reflects difference from PBOC's official midpoint, since non-deliverable forwards are settled against the midpoint. . (Reporting by Shanghai newsroom; Editing by Jamie Freed)