Yuan hits high, ends down

The yuan hit a fresh post-revaluation high against the dollar for an eighth straight day on Monday, amid expectations that China would ensure relatively fast appreciation in the near term to fight inflation. But the yuan closed lower as the dollar continued its recovery in global markets, in the wake of the US Federal Reserve's efforts last week to ease the credit crisis.
"Both the Chinese central bank and the market are watching the dollar's global performance - if it keeps recovering, it could have a major impact on yuan movements in coming days," said a dealer at a European bank in Shanghai.
The yuan briefly rose to a high of 7.0508 against the dollar in early trade, but fell back to close at 7.0555, down slightly from Friday's close of 7.0540. The Chinese central bank set Monday's yuan mid-point at 7.0518 to the dollar before trade began, up from 7.0593 on Friday but short of Thursday's post-revaluation high of 7.0512.
Dealers said the conservative mid-point was apparently the result of the dollar's global strength, though they still expected the yuan to hit fresh highs in coming days or weeks.
"The dollar appears unlikely to rise sharply in the near term, so the yuan is still likely to breach the psychologically important 7.0000 mark around the end of this month," said a dealer at a major Chinese commercial bank in Shenzhen.
In another sign of China's commitment to yuan appreciation, the central bank set the yuan's daily mid-point versus the euro at a five-week high of 10.8637, up from Friday's 10.8759.
In the past week, the yuan has regained about half the losses against the euro that it suffered during the strong euro uptrend against the dollar that began in early February.
Many traders believe that given global trade tensions, the Chinese central bank wants to appreciate the yuan against the euro moderately this year or at least prevent further depreciation, which would make this year's yuan peak of 10.3992, hit in late January, a target for coming weeks. Offshore, one-year dollar/yuan non-deliverable forwards fell slightly to 6.3340 in late trade on Monday compared with 6.3480 on Friday.