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Yuan Hits 4th Straight High
2005-8-3 10:43:27      China Daily
China's yuan strengthened beyond 8.1040 per dollar Tuesday, recording a post-revaluation high for the fourth straight session as dealers gained confidence that the central bank would allow small gains, the Reuters reported.

Related Event:RMB Revaluation

Dealers said the dollar's weakness against the euro and yen was the primary reason for the yuan's rise Tuesday, when the currency closed at 8.1032 per dollar after climbing as high as 8.1030.

The People's Bank of China, the nation's central bank, has lately allowed the currency room to rise in small increments. Dealers said this has given the market some confidence that Beijing would not step in to curtail a gradual appreciation of the currency, which was revalued July 21.

"Though very tiny, gains over past days have amounted to a further appreciation, indicating the central bank is giving the market larger leeway to trade the yuan," said a dealer at a foreign bank. "And that will benefit China a lot -- relieving international pressure for further revaluations and preparing its banks and companies for the impact of an increasingly flexible forex regime," the Reuter report said.

But others remained wary of pushing the currency too far too fast.

"The yuan's strength today was more or less in line with the dollar's weakening on global markets," said a Shanghai-based dealer at Bank of China, the country's top foreign exchange bank.

Still dollar led

Although China's central bank says the yuan is tracking a basket of currencies, most dealers think that basket is mostly full of dollars, according to the Reuters.

"We believe the dollar still accounts for the lion's share in a package of currencies the yuan is now linked to, so the domestic market is mainly following dollar movements," said a dealer at a foreign bank.

The initial revaluation -- to 8.11 per dollar from a long-standing trading mid-point of 8.2780 -- amounted to 2.07 percent. After more than a week of micro moves, mostly upward, the gain has been extended to 2.16 percent.

The daily ranges also remain narrow because traders fear buying the yuan at high prices that might prompt official selling that would drive the thinly traded currency lower again, the Reuters reported.

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