China's central bank set the yuan's mid-point above 6.60 per dollar for the first time on Thursday, breaching an important barrier just days before Chinese President Hu Jintao travels to Washington. The yuan's rise in the last few days, on the back of successive record highs in its daily mid-point, reflects a long-held pattern of Beijing allowing appreciation of the currency ahead of big political meetings, where it often faces calls for the yuan to strengthen further.
The People's Bank of China (PBOC) set the tone for a strong day for the currency by setting the mid-point for daily trading against the dollar at 6.5997. In spot trading, the yuan rose to as high as 6.5931 versus the dollar in early trade but pulled back slightly to end at 6.6046, a rise of 3.4 percent since last June when authorities dropped a peg with the US dollar that had been set to support the economy during the global financial crisis.
Onshore traders said the yuan had the potential to rise around 500 pips by the end of Hu's US visit on January 21, with a ceiling seen at 6.55 and a floor at 6.60 in the weeks after the visit. Offshore dollar/yuan forwards initially fell across most of the curve to imply more yuan appreciation after Thursday's strong mid-point.
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