The yuan closed slightly higher against the dollar on Wednesday as the Chinese and US administrations reiterated their positions regarding the value of the two countries' currencies ahead of their top-level talks in Washington next week.
In a quarterly monetary policy report late on Tuesday, the People's Bank of China reaffirmed that the government will keep the yuan's exchange rate basically stable - a phrase that implies yuan appreciation against the dollar will be gradual and controlled in line with China's economic conditions.
US Treasury Secretary Timothy Geithner said on Tuesday that China is starting to let the yuan rise more rapidly to curb inflation but needs to move even more swiftly toward a market-driven exchange rate. Dealers said these remarks ahead of the US-China Strategic and Economic Dialogue next week appear routine, but added that US pressure for China to let its currency appreciate has significantly eased this year compared with last year.
Reflecting caution over rising anticipation of yuan gains ahead of the dialogue, the PBOC set the yuan's daily mid-point at 6.5013 against the dollar on Wednesday, slightly weaker than Tuesday's 6.5002. The central bank uses the mid-point to express the governments' intention for the yuan's movements.
Spot yuan closed at 6.4933 versus the dollar, up marginally from Tuesday's close of 6.4968. It has now appreciated 5.12 percent since it was depegged from the dollar in June 2010, and 1.48 percent since the start of this year. Offshore, one-year non-deliverable forwards (NDFs) were bid at 6.3280 at midday, up from 6.3150 at the previous close. Their implied yuan appreciation in a year's time fell to 2.73 percent from 2.95 percent.
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