The yuan edged up against the dollar on Wednesday, buoyed by a weakening US currency and widespread expectations that China will raise interest rates soon to cool inflation, dealers said.
But China is not expected to allow its currency to appreciate significantly faster against the dollar in the short term, as that would invite more inflows of hot money, they said. China's central bank set the yuan's daily mid-point at 7.5263 before trading began on Wednesday, below Tuesday's close of 7.5232, despite macroeconomic data louring a stronger yuan.
Fuelling expectations that another interest hike is around the corner, China said on Tuesday its annual consumer price inflation surged to 6.5 percent in August, the highest level in more than 10 years, from 5.6 percent in July.
China also posted a trade surplus of $24.97 billion for August, its second biggest on record, up from $18.8 billion a year earlier and $24.4 billion in July. Some analysts speculated the central bank might accelerate long-term yuan appreciation to help fight inflation.
In a research report carried by the official Shanghai Securities News, Shenyin & Wanguo Securities predicted the yuan would hit 7.3 against the dollar by the end of this year, appreciating more than 6 percent during 2007, and 6.7 by the end of 2008, rising more than 8 percent next year.
The yuan closed at 7.5216 Wednesday, only marginally higher than Tuesday's finish. It hit a high of 7.5212 during the day, but for a third straight day held back from staging an aggressive test of the 7.5200 level.
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