The Chinese yuan reached the strongest level since 1993 versus the US dollar today on the speculation that China’s government would allow the faster appreciation of the currency to avoid the trade sanctions from the US.
Lu Ting, the economist at the Bank of America-Merrill Lynch explained:
China doesn’t want to see the relationship with the U.S. get hurt because of the currency issue. There will be more space for yuan appreciation also because signs show the economy will have a soft landing.
China, with its blooming economy, may endure some negative impact from the stronger currency. The government reports last week showed that the retail sales and the industrial production expanded, the trade surplus was above $20 billion for the third straight month. “China’s economy is now in good shape, featuring fast growth, gradual structural improvement, rising employment and basic price stability”, said Wen Jiabao, the Premier of the State Council of the People’s Republic of China.
China’s central bank set the reference rate at 6.7378 per dollar, the highest level since the dollar peg was ended in July 2005. The US House Ways and Means Committee will discuss China’s currency policy tomorrow and on September 16th.
USD/CNY fell from 6.7610 to 6.7440 today as of 16:12 GMT after advancing previously to 6.7908. EUR/CNY rose from 8.7105 to 8.7774.
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