Yuan ends slightly up

The yuan edged up slightly against the dollar on Tuesday after the Chinese central bank set the currency's mid-point, or reference rate, almost unchanged. Despite the currency's apparent stability, the People's Bank of China has allowed the yuan to dip from its level in late May.
The central bank has pegged the yuan to the dollar in a 100-pip range since late last year due to the global financial crisis. It now keeps the strong end of the yuan/dollar range at 6.8300, down from 6.8200 it maintained in the month until late May, with dealers citing signs of improvement in the US economy, which will support the dollar's value.
"Signs of an improvement in the US economy have led to expectations for a cycle of interest rate hikes in the country," said currency strategist Liu Dongliang at China Merchants Bank in Shenzhen, citing figures including Friday's US jobs loss data.
"That will guarantee that the dollar would at least not lose its strong position soon, making a bet in a US dollar fall inappropriate for now," Liu said in a research report on Tuesday. Spot yuan moved in a narrow range of 6.8345 to 6.8369 versus the dollar on Tuesday, almost unchanged from its range on Monday. It closed at 6.8354, up slightly from Monday's close of 6.8371.
That came after the Chinese central bank fixed the yuan's daily mid-point at 6.8366 before trade began, almost unchanged from Monday's reference rate of 6.8365. Propelled by US policies and economic data, the dollar has staged steep fluctuations since late May, and the US dollar index has since repeatedly hit its lowest level this year. The index, however, has jumped around 3.5 percent since it hit its recent low of 78.334 one week ago.
Dealers speculated that the Chinese central bank may have concluded that the dollar has potential to rise slightly in the near term despite its recent volatility, thus choosing to let the yuan dip in late May and early June. It now appears to have set a new effective peg for the yuan to the dollar in a 100-pip range with the strong end at 6.8300.
"The central bank is apparently prepared to keep the yuan stable again in the new range," said a dealer at a European bank in Shanghai, forecasting that the yuan would move in a range of 6.8250 to 6.8400 in the coming few weeks.
In a related development, the World Bank on Monday defended the US dollar as the global reserve currency of choice but also welcomed efforts to make the yuan a major international currency. When asked whether China might decrease its purchases of US Treasuries, World Bank chief Robert Zoellick warned against any abrupt, unilateral moves that could worsen a weak global financial situation.