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Chinese yuan strengthens on relaxation speculation

The Chinese yuan posted record gains last week on speculation the currency will be given freer rein ahead of a key economic meet of the globe's top industrial powers.

The yuan on Thursday rose to its highest level against the dollar since July last year, climbing to 7.9522 on the exchange-traded market before slipping back to 7.9540 on Friday.

Traders said the strong gains reflected a trend ahead of a gathering of finance ministers and central bankers from the G7 that is likely to renew calls for greater flexibility in China's forex regime.

Britain, Canada, France, Germany, Italy, Japan and the US are scheduled to meet on Sept. 15 in Singapore, followed by IMF and World Bank meetings that run through Sept. 20.

"The gradual trend in appreciation is very much in play," said Callum Henderson, a currency specialist at Standard Chartered in Singapore.

"There has obviously been a lot of focus on either band widening or acceleration of appreciation and we would expect the yuan to appreciate and to continue to accelerate into the IMF and G7 meetings," he said.

IMF Managing Director Rodrigo Rato urged Beijing, in an online briefing from Washington, to keep its long-held promise to ease its tightly controlled currency.

"We believe it is in the interest of China to implement more forcefully the exchange rate regime it gave itself last year and to let market forces determine things in China in a more clear way," Rato said on Thursday, a message that could be repeated in Singapore.

Since China revalued its currency by 2.1 percent in July last year, ending the currency's decade-long peg to the dollar, China has repeatedly said it will allow its forex regime more flexibility.

But the yuan has since risen less than 2 percent as a ballooning surplus has become one of the biggest causes of friction with its major trading partners.

China's export-driven economy saw its trade surplus soar more than 40 percent year-on-year to US$14.61 billion in July, bringing the seven-month figure to US$75.95 billion, up nearly 52 percent from the same period last year.

Last week's rise, set on Monday at 7.9719 against the dollar, began with speculative chatter in the Chinese press that the central bank does want to see greater flexibility in the currency.
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