China's yuan inched up against the dollar on Wednesday, despite a post-revaluation mid-point high set by the central bank, as dealers expect the currency to lose momentum as Sino-US trade talks in Washington come to a close.
The central bank set the yuan's mid-point at 7.6540 to the dollar before the opening on Wednesday, up from 7.6551 on Tuesday. It was the highest mid-point since Beijing revalued the yuan and abolished its peg to the dollar in July 2005.
It was the third straight day that the central bank had set the yuan's mid-point at a post-revaluation high, a goodwill gesture by China to ease tensions at high-level trade talks with the United States that end on Wednesday.
The yuan closed at an intraday high of 7.6530, only marginally higher than Tuesday's close of 7.6547, and it moved in a narrow range, touching an intraday low of 7.6596. "The market expects the yuan to come back into a pattern of two steps forward and one step back again after the Sino-US trade talks," said a dealer at a US bank. Prior to Wednesday's consolidation, the yuan had set post-revaluation trading highs for four straight days and hit a high of 7.6514 on Tuesday.
Dealers said the currency was likely to move in a narrow range between 7.6500 and 7.6700 over the next one or two weeks if there are no major breakthroughs from the Sino-US trade talks as the market is expecting. China has posed a slew of goodwill gestures ahead of the talks, including a widening of the yuan's trading band in either direction to 0.5 percent from Monday, though the market had never seriously tested the edges of the previous 0.3 percent band.
The central bank has also allowed the yuan to rise 1 percent from its recent intraday low of 7.7350 set on April 26. That rise was at an annual appreciation rate of over 10 percent. But few expect the yuan can sustain the momentum.
A Reuters poll published on Tuesday forecast the yuan to rise no faster in the rest of 2007 and to end the year at 7.43, or 3 percent above Wednesday's close. The currency has appreciated 2 percent so far this year. The forecast is broadly in line with earlier polls in January and February, which produced median end-2007 rates of 7.40.
Analysts have said Beijing is shifting its focus this year to solve domestic issues - such as raising bank reserve ratios to curb liquidity and cutting tax rebates to discourage exports of low-end products, moves that mean a faster yuan appreciation is not only unlikely but could even be sidelined for now.