Yuan Posts Quarterly Gain

The yuan completed a 12th quarterly gain, the second-best performer among the 10 most-active currencies in Asia this year, on speculation the central bank will allow the currency to strengthen to stem inflation.

People's Bank of China Governor Zhou Xiaochuan reiterated on June 27 that China will gradually increase yuan flexibility after meeting East Asian, Pacific and European central bankers in Rome. The yuan has gained 6.6 percent against the dollar this year, approaching the 6.86 percent advance for all of 2007.

The currency climbed 2.3 percent this quarter to 6.8543 per dollar in Shanghai as of 5:30 p.m., compared with 7.0120 on March 31, according to the China Foreign Exchange Trade System. It touched 6.8540 today, the highest since a dollar peg was abolished in 2005.

The yuan is allowed to trade by up to 0.5 percent against the dollar each day either side of the so-called central parity rate. It advanced 0.12 percent today, the biggest gain in eight days.

Zhou Xiaochuan said today in Basel, Switzerland that he can't rule out an interest-rate increase to curb inflation. The central bank has kept the benchmark one-year interest rate unchanged so far this year since a widening rate differential with the U.S. would attract more speculative capital.

Government bonds were little changed after falling 0.6 percent last week as investors speculated the central bank would raise interest rates over the weekend, a move that failed to materialize.

The yield on the benchmark 10-year treasury rose 16 basis points to 4.49 percent last week, according to the Bloomberg China Bond Fixings.

Yuan Posts Quarterly Gain

TradingEconomics.com, Bloomberg
6/30/2008 7:13:00 AM