Yuan gains; revaluation pressure to ease
(Reuters)
Updated: 2005-12-13 20:56

China's yuan ended at 8.0751 to the dollar on Tuesday, marking its highest level since the July revaluation on a flurry of comments from Chinese and U.S. officials and the dollar's weakness on global markets.

The yuan, which was revalued by 2.1 percent on July 21 to 8.11 per dollar, has now appreciated a further 0.43 percent since the policy move. It ended at 8.0770 to the dollar on Monday.

A visitor passes by a poster showing the design and print process of Chinese currency yuan during an exhibition about finance knowledge at the National Museum of China in Beijing in this December 9, 2005 photo. [Newsphoto]

"The yuan just went from strength to strength today, due in part to comments from both the Chinese and the Americans and a weaker U.S. dollar," a Beijing-based dealer at a large Chinese bank said.

"There was little sign the central bank was active in the market today."

China's central bank chief Zhou Xiaochuan said on Tuesday he did not see more pressure on the yuan to further appreciate next year if the country's trade surplus shrinks.

Zhou on Monday also dismissed as nonsense speculation of a major shift in policy towards the yuan at the end of the year.

The yuan firmed last week in response to reports in German magazine WirtschaftsWoche that China was preparing to revalue the yuan against the dollar on Jan. 1.

Meanwhile, U.S. Under Secretary for International Affairs Timothy Adams said China should act on its pledge to make the currency regime more flexible.

U.S. manufacturers have long argued that the yuan is seriously undervalued and gives Chinese-made goods an unfair advantage on international markets.

On Tuesday, Yu Yongding, an adviser to China's central bank, said domestic firms should get ready for a strengthening of the yuan in the next one to two years.

His earlier comment that China and other east Asian countries must reduce their dollar holdings was also cited as a factor in the dollar's fall overnight.

The U.S. dollar had weakened by about 1 percent against the euro and yen on Monday, ahead of a Federal Reserve meeting on Tuesday that some traders expect could signal an end to an 18-month campaign of raising U.S. interest rates.

In the onshore forwards market, two one-year deals were fixed at 7.775 per dollar on Tuesday, anticipating that the yuan would be 3.9 percent stronger in a year's time.

The yuan closed weaker against the euro at 9.6515 versus 9.5575 on Monday and lower against the yen at 6.7399 to 100 yen versus 6.6809.