The yuan hit its highest level since the July 2005 revaluation on Friday for the third straight day after remarks by China's central bank chief on diversifying the country's foreign exchange reserves depressed the dollar on global markets.
The yuan closed at 7.8645 to the dollar after it hit an intraday high of 7.8633, its highest level since Beijing scrapped its peg to the dollar and revalued the yuan by 2.1 percent in July 2005.
Its previous trading high was 7.8649, reached in intraday trading on Thursday, when it closed at 7.8665. The dollar slid to 2-1/2 month lows against the euro on Friday, weighed by comments from China's central bank chief that the bank is looking to diversify its $1 trillion stash of currency reserves - the world's largest.
With the bulk of the People's Bank of China's reserves widely thought to be in dollar-denominated assets, many traders took Zhou Xiaochuan's comments to mean China might buy fewer dollars from future reserve accumulation or trim current dollar holdings.
"There is a feeling here that the global markets had over-reacted to Zhou's comments, though the yuan followed the global trend anyway," said a dealer at a major Chinese bank. A Shanghai dealer at a European bank said the unexpected weakening of the dollar on Friday diverted attention of investors on the domestic market, the China Foreign Exchange Trade System.