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Yuan increases most against dollar since end of peg

Yuan increases most against dollar since end of peg

The yuan rose the most since China ended its fixed exchange rate to the U.S. dollar in 2005 as the government signaled faster gains to cool the economy and curb inflation.
The currency climbed as much as 0.43 percent after the official China Securities Journal cited Ba Shusong, a cabinet researcher, calling for a stronger yuan to curb prices of imported fuel and food. The central bank December 21 called for the market to play a greater role in setting the exchange rate.
"The economy is overheating in at least some regions," Yu Yongding, the director of the World Economics and Politics Institute in Beijing and a former central bank monetary policy committee member said in an interview yseterday. "The central bank now has more room to let the yuan rate float with more flexibility."
The yuan strengthened 0.34 percent to 7.3192 per U.S. dollar as of 2:52 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The average daily fluctuation this week of 0.27 percent is three times larger than last week's figure. The currency's 6.6 percent gain versus the U.S. dollar this year is twice as much as last year's 3.3 percent advance.
The U.S. trade deficit with China is still set to exceed last year's record of US$232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan controls are loosened.
While the yuan gained against the U.S. dollar this year, it dropped against 7 of the world's 17 most-active currencies. It slid 3 percent against the euro, 11 percent versus the Canadian dollar and 13 percent against the Brazilian real, pushing up import costs.
A 10 percent appreciation in the yuan against the U.S. dollar would reduce the import prices of oil, soybeans and pork by about 10 percent, Ba, a deputy director at the State Council Development and Research Center, was cited as saying by the China Securities newspaper.
The CSI 300 Index has almost tripled this year pushing prices to 46 times per-share earnings, more than double that of Hong Kong's Hang Seng Index. It gained 1.6 percent yesterday.
"We're seeing some big moves in the yuan," said David Mann, senior strategist at Standard Chartered in Hong Kong. "It makes sense for them to get more aggressive in addressing the overheating pressures in the economy." The currency will rise to 6.84 by the end of 2008, he said.


Updated : 2020-12-05 10:52 GMT+08:00