Yuan Is Near Post-Peg High

The yuan traded near the strongest since a dollar link was scrapped in July 2005 before Chinese officials visit the U.S. this week, when calls for faster currency gains may be repeated.

U.S. Treasury Secretary Henry Paulson and his Chinese counterparts are scheduled to meet in Annapolis, Maryland, on June 17-18 for the fourth in a series of cabinet-level talks. The U.S. wants the yuan to be allowed to keep strengthening, Alan Holmer, the Treasury's top China negotiator, said during the weekend.

``We can expect the U.S. to again address yuan strength during this strategic dialogue,'' said Dwyfor Evans, a currency strategist at State Street Global Markets in Hong Kong. ``The Chinese may become a lot more receptive to currency strength given the latest trade data and inflation concerns.''

The yuan fetched 6.9004 per dollar as of the 5:30 p.m. close in Shanghai, from 6.9018 at the end of last week, according to the China Foreign Exchange Trade System. It rose 2.7 percent in the past three months, making it the best performer of the 10 most-traded currencies in Asia outside Japan.

The People's Bank of China has allowed the yuan to gain 5.8 percent this year, after rising almost 7 percent in 2007, to help temper inflation. China should increase interest rates, allow its currency to strengthen and try to cool the economy, Yu Yongding, a former adviser to the central bank, said yesterday at a forum in Jeju, South Korea.

The trade surplus, foreign direct investment and inflows of capital from investors betting on currency gains are flooding China's economy with cash, pushing money-supply growth to the fastest in four months in May.

Industrial production expanded 16 percent in May from a year earlier, after gaining 15.7 percent in April, helped by increasing exports, the statistics bureau said today in Beijing.

China's policy makers are more concerned about reining in inflation than boosting economic growth as export and domestic consumption are holding up, said Paul Tang, chief economist at Bank of East Asia Ltd. in Hong Kong.

The inflation rate was 7.7 percent in May, exceeding the government's 2008 target of 4.8 percent in each of the first five months of the year, the statistics bureau said last week.

Yuan Is Near Post-Peg High

TradingEconomics.com, Bloomberg
6/16/2008 6:33:26 AM