Yuan Little Changed; China May Boost Currency to Cut Trade Gap
China’s yuan was little changed, pausing after the biggest decline in four weeks yesterday, amid speculation the government will use a stronger currency to narrow the trade gap.
The trade surplus unexpectedly widened 4 percent from a year earlier to $25.3 billion, the first increase in four months, according to China customs bureau figures released Aug. 11. U.S. Treasury Secretary Henry Paulson said Aug. 19 China must let its currency appreciate to curb domestic inflation and defuse tensions in Congress that may prompt trade penalties.
“China still has a huge trade surplus, giving room for appreciation of the yuan,” said Xie Dongming, an analyst at Oversea-Chinese Banking Corp. in Singapore. “The currency will appreciate more on a trade-weighted basis while its advance against the dollar will depend on the dollar’s moves.”
The yuan was at 6.8455 a dollar as of 9:43 a.m. in Shanghai, from 6.8481 yesterday, according to the China Foreign Exchange Trade System. The currency is allowed to trade by as much as 0.5 percent against the dollar either side of a daily rate set by the central bank, which was fixed at 6.84 today.
The Chinese currency dropped 0.22 percent yesterday, the biggest daily loss since July 28.
The yuan has weakened 0.2 percent versus the dollar this month, after a 6.5 percent gain in the first seven months of 2008. The U.S. dollar has strengthened against all 16 of the most actively-traded currencies at the same time.
Dollar Index
“The dollar’s rebound contributes to the yuan’s weakness this month,” said Wen Li, a Beijing-based dealer at Bank of China Ltd., the nation’s largest foreign currency trader. “The government will probably take the chance to slow down the yuan’s appreciation.”
The ICE futures exchange’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, rose 0.26 percent today to 76.99. The index touched 77.413 on Aug. 19, the highest this year.
The central bank manages the yuan’s exchange rate against a basket of currencies, including the yen and the euro, after scrapping a peg to the dollar in 2005. The euro fell for a third day against the dollar.
China’s yuan has gained 6.9 percent versus the euro and 3.8 percent against the yen this quarter, compared with a 0.12 percent advance versus the dollar.
Tags: central-bank, inflation