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Yuan Hits Record High Against Dollar

(4/4/2013)

The Chinese yuan reached its highest mark ever against the U.S. dollar this week, rising 0.15% on Tuesday to 6.1986, before a modest retreat was sparked by China's central bank. The People's Bank of China (PBOC) effectively lowered the range the currency can be traded within on Wednesday, striking a chord of caution and calling the world's economic outlook "complicated."

Tuesday had produced the yuan's biggest gain against the dollar since December of 2012, pushing the Chinese currency to its strongest point since 1993, when China's government unified official and market rates. The PBOC surprised many analysts on Tuesday by setting its daily currency reference point – commonly called a midpoint – 0.14% stronger, allowing the yuan to appreciate.

The central bank now says it plans to keep the yuan's trading value stable in the near future, continuing to drown out global critics who want China to allow its currency to appreciate more rapidly. China is frequently accused by foreign countries of artificially manipulating its currency to make its exports less expensive, gaining a trade advantage. But, following years of unchanging policy by the Asian superpower, economists say China has recently shown more market tolerance in letting the yuan gradually drift higher. Analysts expect China to maintain its slow currency appreciation policy, at least until the PBOC believes the global economy has considerably improved.

The PBOC is achieving its overall goals, economists say, as China posted a trade surplus in February, despite expectations of a deficit due to seasonal weakness from the weeklong Chinese New Year. China's February surplus reached $15.3 billion, narrowing from January's $30 billion figure. One reason money is coming into China is because of significant quantitative easing by the U.S. Federal Reserve and other Western government banks. That's kept market pressures high, traders say, consistently driving the yuan to the top of its controlled band, even as the PBOC allows the currency to nudge higher.



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