Yuan Near Highest Since Peg


The yuan traded near the highest level since a dollar peg was scrapped in 2005 on speculation China will seek a stronger currency to slow inflation. Government bonds declined.

The yuan has appreciated 2.2 percent against the dollar this quarter, the best among the 10 most-traded currencies in Asia outside Japan, as Premier Wen Jiabao pledged to tackle inflation. A central bank survey showed that most households expect consumer prices to rise next quarter, according to a statement published on its Web site yesterday.

The currency closed at 6.8657 per dollar in Shanghai as of 5:30 p.m., compared with 6.8653 yesterday, according to the China Foreign Exchange Trade System. It touched 6.8612, the highest since the dollar link was abandoned. The yuan is allowed to trade by as much as 0.5 percent against the dollar either side of the rate.

Inflation quickened to 8.1 percent in the first five months of this year, compared with 4.8 percent for all of 2007. A strengthening currency lowers import costs.

Seven of the 10 most-active Asian currencies outside Japan gained against the dollar today after the Federal Reserve gave no signal that it will start reversing the most aggressive series of interest-rate cuts in two decades.

China's international currency reserves rose to almost $1.8 trillion in May, from $1.68 trillion in March, Reuters reported yesterday, citing unidentified sources. The rapid expansion of the reserves fueled concern that speculators are bringing money into the country, seeking to profit from faster yuan gains.


TradingEconomics.com, Bloomberg
6/26/2008 6:39:11 AM