Yuan Climbs to Highest Since Peg

China's yuan climbed to the highest since a dollar link was scrapped in 2005 after the central bank said controlling inflation must remain China's top priority.

Economic growth may slow moderately this year and the government should stabilize inflation expectations, the People's Bank of China said May 30. The yuan has gained 5.4 percent versus the dollar this year, as the nation's inflation quickened to 8.5 percent in April, posing threats to social stability.

The currency advanced 0.13 percent to 6.9330 per dollar as of 5:30 p.m. in Shanghai, from 6.9420 on May 30, according to the China Foreign Exchange Trade System. It touched 6.9323.

The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan that includes the euro and the yen, has risen 4.1 percent, more than last year's 3.4 percent. The gauge has climbed 2.6 percent this quarter while the yuan has gained 1 percent against the dollar.

Manufacturing in China expanded at a slower pace in May as export growth weakened. The Purchasing Managers' Index fell to 53.3 from a record 59.2 in April, the China Federation of Logistics and Purchasing said yesterday.

Since a dollar peg was abolished in 2005, China has managed the exchange rate against a basket of currencies including the euro, yen, South Korean won, Hong Kong dollar and British pound.

Government bonds rose on speculation inflation last month slowed as food prices eased. Consumer prices may have advanced 7.5 percent in May, from 8.5 percent in April, according to a report by Shenyin Wanguo Research & Consulting Co. in Shanghai. The data will be released June 12, according to a schedule from the National Bureau of Statistics of China.

Yuan Climbs to Highest Since Peg

TradingEconomics.com, Bloomberg
6/2/2008 6:34:18 AM