The yuan advanced this week by the most in almost four months as the US made renewed calls for China to allow appreciation before Chinese President Hu Jintao’s (胡錦濤) visit to Washington next week.
The yuan touched its strongest level since 1993 yesterday after US Treasury Secretary Timothy Geithner said on Wednesday China needs to strengthen the “substantially undervalued” currency because it puts other countries at a competitive disadvantage. The People’s Bank of China, which has targeted gradual gains to help curb inflation, set the yuan’s daily fixing at 6.5896 per dollar, 0.15 percent stronger than the day before and the highest level since at least July 2005.
“It’s difficult to pinpoint any one event, but you can say this visit of Hu Jintao next week to Washington may have played a part for the yuan’s appreciation,” said Nizam Idris, a foreign-exchange strategist with UBS AG in Singapore. “Fundamentally they need to allow the currency to appreciate.”
The yuan advanced 0.58 percent from a week ago and was up 0.22 percent from the day before at 6.5900 as of 4:55pm yesterday in Shanghai, according to the China Foreign Exchange Trade System in Shanghai. It earlier reached 6.5870, the strongest level since 1993. UBS predicts the currency will climb to 6.20 by year-end, Idris said.
Twelve-month non-deliverable forwards rose on the week by 0.49 percent to 6.4380, implying a 2.4 percent appreciation in the currency over a year, according to Bloomberg data.
Hu is to meet with US President Barack Obama next Wednesday and currency policy remains a major point of contention between the two governments.
China’s yuan policy is based upon national interests, Chinese Vice Foreign Minister Cui Tiankai (崔天凱) said yesterday. The Chinese government argues the yuan’s value isn’t a major factor affecting trade imbalances, which are driven by US consumption and excessive liquidity from stimulus measures to pump prime the US economy.
China is facing increasing inflation expectations and rising pressure from capital inflows, Li Dongrong (李東榮), assistant governor of the People’s Bank of China, said in a speech published on the central bank’s Web site yesterday. Li said China would keep moving forward on exchange-rate reform and increasing yuan flexibility, according to the speech.
Policy makers on Dec. 25 lifted the benchmark lending and deposit rates by 25 basis points to 5.81 percent and 2.75 percent, respectively. China’s consumer prices climbed a 28-month high of 5.1 percent in November from a year earlier.
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