China's yuan rose sharply against the dollar on Tuesday, as the US currency failed to regain its momentum globally amid growing tension over Iran's nuclear programme. The yuan finished at 7.7415 versus the dollar, compared with Monday's close of 7.7535, after the central bank set its daily mid-point at 7.7471, stronger than 7.7498 the previous day.
Traders attributed the yuan's strength to a weak US currency, which hovered near its two-month low against the euro and slipped against yen on Tuesday for the second straight day this week, as Iranian nuclear tension persisted.
Furthermore, US economic data expected later on Tuesday, which could point to a slowing economy and support the case for interest-rate cuts by the Federal Reserve, may also weigh on the dollar and give the yuan a boost in coming days, they said. "Chances for the yuan to climb further and top the 7.7400 level this week are pretty high if the dollar stays weak," a Shanghai-based dealer said. Beijing has maintained a gradual approach in reforming its foreign currency regime, out of concern that an overly rapid appreciation of the yuan could hurt China's economy.
The authorities scrapped a decade-old yuan-dollar peg in July 2005, revalued the currency by 2.1 percent and set it free to float within managed bands. The yuan peaked on February 16 when it hit a post-revaluation intraday high of 7.7415 versus the dollar, and has since gained a further 4.76 percent.
However, the yuan is under pressure to rise further as China's trade partners, particularly the United States, say the currency is undervalued in light of China's big trade surplus which grew 74 percent last year to a record $177.47 billion.
In remarks published by the HK Commercial Daily on Tuesday, central bank governor Zhou Xiaochuan said China may allow the yuan to rise more quickly in 2007 if its trade surplus keeps growing rapidly. He also reiterated an earlier stance that China would let market forces play a bigger role in deciding the yuan's value, but that the approach would remain gradual.
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