The yuan closed slightly higher against the dollar on Wednesday, recording a gain of 0.4 percent for January, as the central bank sought to slow a recent faster-than-expected rise in the Chinese currency.
January's rise suggests the yuan could appreciate by around 5 percent this year, in line with market expectations and at a quicker pace than last year's 3.4 percent, though dealers said the People's Bank of China was not likely to set the same pace of the currency's appreciation for every month.
On Wednesday, two Chinese government think-tanks presented contrasting views on the pace at which the yuan should appreciate, underlining the degree to which internal debate on the topic persists, but dealers said such academic views should have little impact on central bank policy for now.
"The yuan's trading in January suggests the central bank is probably setting the pace for its rise at the market-expected 5 percent in 2007," said a Shanghai dealer at a European bank.
The yuan closed at 7.7739 to the dollar, up from Tuesday's close of 7.7750 after trading in a narrow box of 7.7720 to 7.7755. The yuan had gained as much as 0.48 percent from the start of this year to last Thursday when it hit 7.7680, its highest intraday level since Beijing revalued the currency by 2.1 percent and depegged it from the dollar. That pace implied an annual rise of around 6 percent, dealers said.
Last Friday, the central bank intervened to curb the yuan's gains when the currency was trading around 7.7750, dealers said. "Although the central bank is always a big player in the market, its activities seem to have strengthened since Friday," said a dealer at another European bank. "The central bank appears not willing to see the yuan rise too fast, too sharply." Dealers said they maintained their forecast that the yuan would rise to around 7.75 to the dollar by mid-February and appreciate 5 percent in 2007.
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