The yuan was flat against the dollar on Tuesday in the onshore spot market and slipped on the forwards markets after China reported surprisingly high inflation for February. Some dealers said the yuan's softness despite the data showed the markets thought China had reached the limit of its willingness to accelerate yuan appreciation to fight inflation.
"The market doesn't think the surprisingly high inflation in February will necessarily mean a faster pace of yuan appreciation," said a dealer at a European bank in Shanghai.
"Recent comments by central bank governor Zhou Xiaochuan indicate the government may now feel the cost of relying almost entirely on yuan appreciation to curb inflation is too high." The spot yuan rate touched a fresh post-revaluation high of 7.1000 to the dollar in early morning trade after the central bank set its daily mid-point at 7.1029, the reference rate's first post-revaluation high this month.
The yuan slipped back, hitting an intraday low of 7.1100 before closing unchanged at 7.1029, even though the government announced consumer price inflation jumped in February to an 11-year high of 8.7 percent, from 7.1 percent in January. The market had generally expected a February rate of 8.1 percent. The Chinese currency dropped sharply in the onshore forwards market.
One-year dollar/yuan forwards ended at 6.4477, down from 6.3883 at the close on Monday, when they posted their biggest daily rise since China opened its onshore foreign exchange forwards market in August 2006.
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