Foreign Exchange News
- Yuan hits fresh high on dollar weakness
Date: 5-Dec-2006 Sources: (Shenzhen Daily)
THE yuan rose against the U.S. dollar yesterday, hitting its highest level since its July 2005 revaluation, as lingering global dollar weakness became the key factor to boost the yuan.
The yuan was trading at 7.8264 to the dollar yesterday afternoon, compared with Friday's close of 7.8360 to the dollar.
It hit a post-revaluation high of 7.8230 in intraday trading, erasing the former high of 7.8280 Friday and having hit such highs nearly every day over the past two weeks.
'The dollar's weakening on global markets is stronger than many of us had expected,'said a dealer at a major domestic commercial bank. 'That has become the single most important factor to buoy the yuan today.'
The dollar weakness also allowed the People's Bank of China to set the daily mid-point of the yuan at another record high of 7.8240 yesterday morning, much stronger than 7.8331 Friday.
Dealers also expect the central bank will allow the yuan to rise faster before a planned visit by U.S. Treasury Secretary Henry Paulson in mid-December to create a friendly atmosphere for the Sino-U.S. dialogue.
'China is likely to make a goodwill gesture around the time of Paulson's visit,'said a dealer at a European bank.
A group of senior U.S. Government representatives - including U.S. Federal Reserve Chairman Ben Bernanke - will accompany Paulson to visit Beijing, dealers said.
Paulson is coming for the so-called 'strategic dialogue between U.S. and China?on issues ranging from trade to currency.
Dealers said the pace of the yuan's rise in the coming weeks would still be gradual and under the control of the central bank, as the government is concerned a rapid appreciation would hurt the country's economy and exports.
The yuan has now appreciated a further 3.62 percent since it was revalued by 2.1 percent in July 2005, and dealers said they expected the currency to rise to 7.8 to the dollar by the end of this year.
In another development, Xia Bin, director general of the financial research institute at the State Council's Development Research Center, said China should diversify the management of its massive foreign exchange reserves to help meet the long-term strategic development needs of the country's economy, the China Securities Journal reported yesterday.
Xia said in the report that the Ministry of Finance should issue yuan-denominated bonds to buy central bank foreign reserves, then use the foreign exchange to invest overseas.
He also said the central bank should spin off Central Huijin Investment Co., the government's financial holding company, and set it up as an independent foreign investment agency.
Much of China's more than US$1 trillion foreign exchange reserves are parked in U.S. treasuries, and making better use of those reserves has become a key issue for government policymakers.
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