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Yuan extends rise on euro strength

yuan-SHANGHAI: China's yuan briefly touched on the strong side trading limit in Monday's afternoon session, as traders pointed towards a euro rally against the dollar as propping up demand.


The yuan opened at 6.2430 per dollar, but weakened in morning trading when it looked unlikely to trouble the strong side limit.


But the currency strengthened in the afternoon session, briefly hitting the edge of the strong side trading band before weakening slightly to close at 6.2405 against Monday's 6.2436.


The yuan/dollar exchange rate can rise or fall 1 percent from the mid-point set by the central bank each day.


A sharp strengthening of the euro against the dollar that began around 2pm (0600 GMT) supported the yuan's appreciation in the afternoon session, traders said.


The yuan tends to track the performance of the euro and other global currencies against the dollar.


The single currency climbed 0.3 percent against the dollar to $1.2935, helped by lower Spanish and Italian bond yields.


The People's Bank of China set its midpoint at 6.3028 per dollar, weaker than Monday's fix of 6.2992.


That broke a sequence of three consecutive days when the central bank has strengthened the yuan's midpoint, suggesting the bank had felt confident yuan demand has eased.


Despite touching the strong side boundary -- the third time since the limit was first reached last Thursday -- the currency didn't hit Monday's record strong point of 6.2371.


Some traders said that demand had loosened as the rate reached a natural balance after its appreciation run since a year-low in late July.


However, others felt that the yuan could keep on strengthening without further central bank intervention.


Copyright Reuters, 2012


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