Yuan Near Highest Since Peg

The yuan traded near the highest level since a dollar peg was scrapped in 2005 on signs China will strengthen the local currency to help narrow its trade surplus and slow inflation. Bonds declined.

China's yuan has gained 5.6 percent against the dollar this year, compared with a 7 percent advance in all of 2007. The central bank told lenders on June 7 to set aside more money for a fifth time this year to cool inflation as the trade surplus, foreign investment and speculative inflows flood the nation's banking system with cash.

The currency was little changed at 6.9255 per dollar in Shanghai as of 5:30 p.m., compared with 6.9230 on June 6, according to the China Foreign Exchange Trade System. It touched as strong as 6.9140 earlier today. Local markets were closed yesterday for a public holiday.

The central bank fixed the daily reference rate at the highest since the end of the dollar peg for a second trading day. The so-called central parity rate was set at 6.9199 today. The yuan is allowed to trade by up to 0.5 percent against the dollar either side of the rate.

China should allow the yuan to rise faster against the U.S. dollar to help ease producer-price inflation, Xu Lianzhong, a price monitoring official at the National Development and Reform Commission said.

Inflation cooled to 7.7 percent in May, from the 8.5 percent in April, according to two government officials who said they saw statistics bureau data. The officials wouldn't be identified ahead of the official release of the number on June 12.

Yuan Near Highest Since Peg

TradingEconomics.com, Bloomberg
6/10/2008 7:21:50 AM