Yuan allowed to rise further ahead of G20 meet

The Chinese yuan today rose to its strongest level against the US dollar since December 2008, as speculation of near-term yuan appreciation intensified after the Chinese central bank set the currency's daily reference rate at a record high against the dollar, allowing appreciation before the Group of 20 meeting tomorrow.

The dollar fell to as low as 6.7856 yuan in China's over-the-counter market shortly after opening, down from 6.7997 yuan at Thursday's close. The 6.7856 level was the yuan's strongest against the dollar since the 1980s.

The central bank set the dollar-yuan fixing at 6.7896, the lowest in modern times, down from 6.8100 Thursday and the previous low of 6.7980 set on Monday. The central parity rate change on Friday implies a 0.3 per cent appreciation of the yuan against the dollar.

Market observers said the low central parity level could be a political gesture from China to ease international pressure for yuan appreciation ahead of the G20 summit meeting over the weekend.

Beijing revalued its currency in July 2005 allowing it to rise 21 per cent against the US currency over the following three years. With a global recession beginning to squeeze China's economy the yuan's value to the dollar was re-pegged at around 6.8300 in July 2008.

The People's Bank of China said on 19 June that it would end a two-year peg to the greenback and manage the yuan with reference to a basket of currencies, noting that the European Union is the nation's biggest trading partner. The euro rallied 0.5 per cent in the last two days against the dollar.