China's yuan breached the psychologically important level of 7.9700 level for the first time on Monday, amid signs that Beijing might allow the Chinese currency to rise faster, dealers said.
The yuan hit 7.9652 against the dollar by late trade, the highest level since Beijing revalued it by 2.1 percent and depegged it from the US currency on July 21, 2005.
Dealers said the yuan's strength also came after the dollar tumbled on the global market on surprisingly slow US growth and damped hope for another interest rate hike next week.
The breakthrough, that came after the yuan had breached another key level of 7.9780 only last Thursday, may indicate Beijing is ready to show more flexibility in letting the currency to rise - as its trader partners had hoped, dealers said.
"It's true dollar's weakness help push up the yuan, but it couldn't have gone up so fast without the central bank's permission," said a trader at a major European bank.
"That's what Washington would like to see." On Tuesday, US Treasury Secretary Henry Paulson is due to discuss his views of global economies in his first policy speech since assuming his post, and dealers will monitor his comments for any details on the currency issue.
Last week, Paulson met with Sen. Charles Schumer, a New York Democrat, and Sen. Lindsey Graham, a South Carolina Republican, authors of legislation threatening China with a 27.5 percent tariff on its exports to the US if the yuan has not risen substantially within six months of the bill becoming law.
The yuan has risen 1.8 percent further against the dollar since the July 2005 policy change. Beijing has ruled out another one-time revaluation of the currency, though it promises to allow its value to rise gradually. Dealers say the yuan is likely to consolidate gains for several days before challenging another key level at 7.9500.
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