SHANGHAI: The Yuan hit another trading peak against the dollar on Friday after a series of recent record highs, as the People's Bank of China fixed the mid-point at an all-time high amid intensifying inflationary pressures.
China's turbo-charged growth eased just a touch in the first quarter, while consumer price inflation jumped to a 32-month high, putting pressure on the government to do more to rein in prices and keep the economy on an even keel, data showed.
Gross domestic product rose 9.7 percent in the first quarter from a year earlier versus 9.8 percent in the final three months of 2010, but ahead of an expected 9.5 percent pace, it said.
Consumer price inflation in March sped to 5.4 percent from a year earlier, the fastest since July 2008 and topping market forecasts for a 5.2 percent increase.
On Thursday, data showed China's foreign exchange reserves soared to a record of more than $3 trillion by end-March, while its money supply growth blew past forecasts, threatening to aggravate the nation's inflation woes, which have also been worsened by surging global commodity prices.
"You see clearly here why the PBOC has been guiding the Yuan to repeated record highs this year," said a trader at a Chinese commercial bank in Shenzhen. "And you can also expect the trend to continue at least for a few months."
Spot Yuan was trading at 6.5311 against the dollar in early afternoon trade, up from Thursday's close of 6.5315.
The currency hit an all-time high of 6.5290 in early afternoon trade, toppling the previous record of 6.5298 touched on Thursday and having appreciated 4.55 percent since it was depegged in June 2010, and 0.92 percent so far this year.
Before trading began, the PBOC fixed the Yuan's mid-point at a record high of 6.5301, up from Thursday's historical high of 6.5339. The fixing is used by the PBOC to express the government's intentions for the currency.
The PBOC has engineered a slew of record highs for the spot Yuan so far this year partly because a weaker dollar helped send global commodity prices surging, boosting imported inflation for China, the world's fastest growing market for staple goods.
Over the past 10 trading days, the PBOC has allowed the mid-point, or its reference rate from which dollar/Yuan can rise or fall 0.5 percent in a given day, to hit record highs nearly every day except for a slight pullback on Tuesday.
But the Yuan's rise in the PBOC fixing during the period was only a minor 0.44 percent, lagging far behind the historical peak of 1.29 percent in a 10-day period seen last September, which, however, was followed by a significant pullback.
Some traders believe the government may have changed its strategy in letting the Chinese currency appreciate. Instead of permitting the Yuan to jump during a major political event and then pulling it back sharply after the event, the PBOC appears to be seeking a stable way to let the Yuan appreciate.
Traders said the prospect for the Yuan to continue to appreciate at a measured pace remains intact in the medium term, with the benchmark Reuters Jefferies CRB index , which covers 19 mostly US-traded commodities, having leapt 45 percent since last June.
They retained the forecast for the Yuan to appreciate 5 to 6 percent for all 2011, up from 3.6 percent last year, but expected gains could be more evenly spread over the year as political pressure from the Unites States eases.
Offshore, one-year non-deliverable forwards were bid at 6.3820 in early afternoon, down slightly from 6.3850 at Thursday's close. Their implied Yuan appreciation in a year's time edged up to 2.32 percent compared with 2.27 percent.
Traders said less-than-expected Yuan appreciation implied in NDFs this year was partly driven by capital outflows to Hong Kong's expanding offshore Yuan business, leaving a small window open to bet on more Yuan strength.
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