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The yuan closed slightly lower against the dollar on Friday after moving in an extremely tight range, as the market digested the Chinese currency's rally over the past two weeks. The yuan finished at 7.6473 to the dollar, down from 7.6466 at the close on Thursday when it hit an intraday peak of 7.6440, its highest since Beijing revalued the currency and abolished its peg to the dollar in July 2005.
On Friday the yuan moved in a range of only 18 pips between 7.6460 and 7.6478, it's narrowest this year. "The yuan lacked momentum to rise further and should move narrowly around 7.6500 in the next week or so," said a Shanghai dealer at a European bank. The pace of the yuan's appreciation had picked up over the past two weeks, which dealers saw as a goodwill gesture by China targeted at key trade talks with the United States in Washington last week.
Before trading began on Friday, the People's Bank of China set the yuan's mid-point at 7.6497 to the dollar, up slightly from Thursday's 7.6506 but not enough of a move to inspire the market, dealers said. Deputy central bank governor Wu Xiaoling said on Thursday that if China's economic reforms succeed, the yuan may strengthen against the dollar although the country would ignore any external pressure for its currency's appreciation. Dealers said her comments had no impact on trading on Friday.
The yuan has gained 2.06 percent since the start of 2007 and dealers expected it to appreciate by 4 to 5 percent this year, compared with a 3.4 percent rise last year. One-year NDFs quoted the yuan at 7.2840/7.2890, indicating appreciation of 4.95 to 5.02 percent in one year's time from Friday's mid-point. That was unchanged from Thursday's percentage range but well below 6.55 to 6.62 percent about two months ago.

Copyright Reuters, 2007

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