SHANGHAI: The yuan hit an all-time high against the dollar on Wednesday in what traders said was a goodwill gesture by China's central bank towards US Treasury Secretary Jack Lew, who is in Beijing for strategic discussions.
The People's Bank of China guided the yuan higher through a stronger official midpoint rate, despite the fact that the dollar index was also rallying in global markets.
Spot yuan touched 6.2113 per dollar late in the session, its highest intraday level since China set up the domestic foreign exchange market in 1994 and toppling the former record high of 6.2124 set on Jan. 14 this year.
The currency trimmed some gains in the last few minutes of trading to end at 6.2118, its highest closing level ever and up 0.06 percent from Tuesday's close of 6.2157. Volume was moderate at $10.4 billion, down from Tuesday's $13.52 billion.
Before trading began, the People's Bank of China (PBOC) surprised market observers by setting its official midpoint 0.07 percent stronger than Tuesday's fix, even though the dollar index retained its strength in Asian morning trade after an overnight rally.
Ordinarily, traders say, the central bank sets the midpoint inversely to moves in the dollar index, with an eye on movements in other currencies like the yen as well.
"It's a clear goodwill gesture to the US Treasury," said a trader at a major Chinese state-owned bank in Beijing.
The US has traditionally pressed China for a stronger yuan, although the issue has become less of a diplomatic irritant as the Chinese trade surplus has shrunk as a share of GDP in recent years.
The trader said Wednesday's gesture was temporary, and he expected the rate to fall back when Lew's visit ended. If the yen and other Asian currencies fall much further, some traders predict the PBOC could even force the yuan weaker by as much as two percent.
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