The yuan rose against the dollar on Tuesday after the central bank set the yuan's daily mid-point at a record high, signalling an official willingness to allow the Chinese currency to rise for the day. The yuan closed at 7.7555, compared with the previous day's close of 7.7609, after hitting an intraday high of 7.7553 and a low of 7.7580.
Before trading began, the People's Bank of China set the yuan's daily mid-point at 7.7595, the highest level since Beijing revalued the yuan and depegged it from the dollar in July 2005. That compared with Monday's mid-point of 7.7640. The central bank is believed to use the daily mid-point to signal its attitude toward the yuan's exchange rate movement.
The record high mid-point came after Washington complained to the World Trade Organisation about Chinese export policies, prompting some dealers to interpret it as Beijing's way to ease foreign pressure for a market-oriented foreign exchange regime.
"Political factors played a part in the yuan's gain today, like they did previously," said a trader with a US bank. But dealers said they expected the Chinese central bank would remain committed to gradualism on the currency issue. "Any significant appreciation annually is unlikely," said the US bank dealer, based in Shanghai.
Washington said on Friday that it had launched the WTO case after negotiations had failed to eliminate Chinese government subsidies for steel, computers, clothing and other industries.
One-year offshore non-deliverable forwards used as a proxy to bet on the yuan's long-term movements, quoted the currency at 7.3470/7.3540, implying appreciation of between 5.51 and 5.61 percent from Tuesday's mid-point.
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