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Yuan hits new high against U.S. dollar
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10:58, July 03, 2007

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China's currency, the yuan, hit a new high against the U.S. dollar on Tuesday , according to the Chinese Foreign Exchange Trading System.

The central parity rate of the yuan, also known as Renminbi (RMB), stood at 7.5951 yuan to one U.S. dollar on Tuesday, gaining 124 basis points from Monday's reference rate of 7.6075 to the dollar.

It is the first time the yuan's value has exceeded the 7.60 mark after it breached 7.7 on May 8. The Chinese currency has now climbed 2,136 basis points from 7.8087 yuan to one U.S. dollar posted on the last trading day of 2006.

The accumulative appreciation since July 21, 2005, when China discontinued yuan's peg to the greenback, has exceeded 7.5 percent.

The People's Bank of China, or the central bank, allows a trading band of 0.5 percent on either side of the midpoint on the inter-bank market.

Chinese experts believe that as a fast growing economy with low inflation, China will inevitably see its currency rise in value. A gradual appreciation brings about fewer risks and upheavals than does an abrupt one.

"It came as no surprise to see the yuan's value exceed the 7.6 mark," senior forex analyst Li Jun told Xinhua, "it was just a continuance of recent revaluations of the yuan."

There may also be technical factors behind it as the U.S. dollar hit a record low in recent years during the early hours on Tuesday, Li said.

The stable growth of the national economy and the upcoming 2008 Olympic Games have boosted investors' confidence and have played a role, according to Tan Yaling, a research analyst with the Bank of China.

People's expectations of economic growth in Hong Kong may have helped drive up the yuan as well, on the back the tenth anniversary of Hong Kong's return, Tan said.

The gradual revaluation of the yuan would be good for the country's stability in terms of economic growth, Tan said.

She also advised the government to be watchful of the inflow of speculative capital in anticipation of the yuan's further appreciation.

Wu Xiaoling, vice governor of the People's Bank of China, said recently that unusual flows of speculative funds may lead to a financial crisis and supervision over such investment should be strengthened.

On Tuesday, the yuan lost 470 basis points from the previous trading day to reach a central parity rate of 10.3445 yuan against one euro. And it moved down 325 basis points to reach 6.2044 yuan against 100 Japanese yen.

Source: Xinhua

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