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Yuan at Highest Level since End of Peg

May 26, 2008 at 10:39 by Andriy Moraru

Chinese yuanThe Chinese yuan rose to the highest rate against the U.S. dollar since the scrapping of the peg in 2005 as the investors expected China to quicken yuan gains in order to cut the inflation growth.

The China’s short-term bonds fell today as their yields rose on speculation that the People’s Bank of China will increase interest rates. The Chinese currency appreciated by 5.3 percent against the U.S. dollar this year — close to the whole 2007 gain of 7 percent.

The primary concern for the government remains the accelerating inflation, which rose to 8.7 percent in February — its highest level in the last 11 years. Majority of the analysts believe that, while the inflation remains that strong, the central bank will keep relying on yuan’s strengthening.

The devastating earthquake in Sichuan province that killed more than 60,000 people and left many families homeless in mainland China will probably support current monetary policy, because the cost of food and other vital goods is skyrocketing in the region.

The yuan gained as little as 0.08 percent today against the dollar — USD/CNY declined to 6.9364 in Shanghai as of 4:17 GMT, from 6.9417 close rate last week. The currency pair has fallen for 8 days in a row — its longest streak since March 20.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

One Response to “Yuan at Highest Level since End of Peg”

  1. Farzand

    China is going the right direction to curb inflation.

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