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The yuan jumped against the dollar in the offshore NDF market on Thursday, setting a fresh post-revaluation record for implied appreciation even though China's central bank chief questioned the need for yuan strength to fight inflation.
In a news conference, Zhou Xiaochuan said: "From an analytical point of view, proper yuan appreciation, or faster yuan appreciation, would be helpful in controlling inflation. But the help won't be huge for such a big country as China.
"So the exchange rate should not be a key measure in fighting inflation...In my personal view, it is unnecessary to use the exchange rate to fight inflation." The comments appeared to contradict the central bank's policy statement last November that the exchange rate was a useful weapon in fighting inflation, and that authorities would use it actively.
Spot yuan fell to an intra-day low of 7.1143 against the dollar in response to Zhou's comments, and onshore one-year dollar/yuan forwards rose slightly. But the yuan continued this week's sharp rise in the offshore non-deliverable forwards market.
One-year dollar/yuan NDFs sank as low as 6.3849 in late trade from Wednesday's low of 6.4230 - one of their biggest daily drops since the yuan was revalued in July 2005. NDFs subsequently rebounded marginally to 6.3920.

Copyright Reuters, 2008

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