Yuan logs biggest weekly gain since Dec. 2008

The yuan had its biggest weekly gain since December 2008 after China set the currency’s daily reference rate at a record high, just ahead of the G20 summit over the weekend after ending a two-year peg to the US currency. The yuan rose 0.5% this week, and 0.1% from yesterday, to 6.79 per dollar as of 5:51 p.m. in Hong Kong. The central bank fixed the reference rate at 6.7896 per dollar, 0.3% stronger than yesterday and 0.15% higher than the close in the spot market. The yuan is allowed to trade 0.5% on either side of the daily fixing. The yuan on Friday touched a post-revaluation high against the US dollar, marking a record modern low for the American currency against the Chinese unit.



The yuan (also known as the renminbi) notched up its biggest gain in five years against the dollar on June 21 and also closed at its highest levels since July 2005 as the People's Bank of China (PBOC) chose to stay on the sidelines and allowed the market to find its feet. In the process, the yuan posted its biggest single-daily gain against the dollar since its revaluation in July 2005. The yuan's previous post-revaluation closing high was 6.8113 set in July 2008, when China re-introduced the yuan-dollar peg to mitigate the impact of the global financial crisis on its economy. Its previous post-revaluation intraday high of 6.8099 was set in September 2008.

Over the weekend, China's central bank announced plans to ease the yuan's de-facto peg to the US dollar in a bid to avert any criticism at the upcoming G20 summit in Toronto. However, the Chinese central bank ruled out a one-time revaluation and said any strengthening of its currency would be gradual. Chinese President Hu Jintao is scheduled to attend the G20 summit, set for June 26-27, along with US President Barack Obama and leaders of the world's other major economies.

The US and many of China's other trading partners have long protested yuan's de-facto peg to the dollar, saying that it keeps the Chinese currency artificially weak and thus gives its exports an unfair advantage. A stronger yuan will help curb inflation in the world’s third-largest economy and shift investment toward service industries from export-manufacturing, the PBOC said. Chinese Foreign Ministry spokesman Qin Gang said a revalued yuan won’t solve US economic woes.