CHINA’s YUAN:RECORD GAIN AGAINST DOLLAR

[Anonymous]

Yuan’s record gain against dollar
China’s yuan has jumped against the dollar in its biggest post-revaluation daily rise after the central bank signalled a shift in its policy.The yuan gained 0.37%, closing at 7.3175 to the dollar.The Chinese central bank encouraged the jump by setting a very strong daily reference rate or mid-point of 7.3079.”The extraordinarily strong mid-points seen this week are a clear signal of faster appreciation of the yuan in the coming year,” said a bank trader.

Strong reference rates
In July 2005, China freed the yuan from its tight peg to the US dollar, by allowing it to float within a narrow 0.15% band either side of a level set by a basket of currencies.The central bank’s reference rate defines the day’s trading band, which now extends 0.5% on either side of the rate.On Monday, the central banks set such a high mid-point that the previous trading day’s close was outside the trading band.The central bank has been setting the strong reference rates despite the dollar’s recent rise in markets around the world.

Further moves
In November, the central bank said it would use the exchange rate to fight inflation, as prices have risen to an 11-year high.One Chinese trader said he thought the central bank might make “some big moves soon, possibly even a further widening of the yuan’s daily trading band”.At the same time, China’s main stock index rose 1.44% on Thursday, driven by property and bank shares.Traders say that some investors were buying property stocks partly because of the accelerating appreciation of the yuan against the dollar, which boosts asset values. 

[Author]

December 28, 2007 at 12:29 PM