Chinese Yuan Surges After U.S. Decision

China's official exchange rate broke through the psychologically important 8 yuan per dollar level Monday, its highest level in more than a decade, in a move traders said might signal Beijing's willingness to allow its currency to appreciate faster.

Analysts said the U.S. government's decision to not formally accuse China of manipulating its currency in a semiannual report last Wednesday may have freed Beijing to let the yuan, also known as the renminbi, or "People's Money," rise further.

The yuan's gain affected currency trading elsewhere, spurring traders to sell dollars for yen due to Japan's proximity to China.

Meanwhile, the surge in China's trade surplus has added to pressure on Beijing to let the yuan's value rise faster.

"The PBC (People's Bank of China) has kept the renminbi stable against the U.S. dollar over the past month for mostly political reasons," Jonathan Anderson, chief Asia economist for the UBS brokerage in Hong Kong, said in a research report issued Monday. He forecast "more aggressive action" on the exchange rate.

The yuan's official, or "parity," rate was set at 7.9982 yuan per dollar Monday morning, breaching 8.0 yuan for the first time. The government announces the official exchange rate each trading day by calculating the weighted average of prices given by 13 market makers excluding highest and lowest offers.

The dollar fell as low as 7.9972 on the over-the-counter market, from its Friday close of 8.0061. By late afternoon, it had rebounded to 8.0012 yuan.

On the automatic price matching system — another way the exchange is determined — the dollar closed at 7.9976 after trading in a range of 7.9989 to 7.9965, its lowest level since a revaluation last July. On Friday it closed at 8.0054.

Many of China's trading partners accuse Beijing of keeping the yuan undervalued, giving Chinese exporters an unfair price advantage overseas and contributing to the country's global trade surplus, which last year grew to $101.88 billion, more than triple the US$32 billion gap recorded the year before.

Chinese officials have pledged to eventually allow the yuan to trade freely in the market, but favor a gradual approach, arguing that the country's fledgling financial system is not ready to face severe currency fluctuations.

Top officials have sought to avoid giving the impression that they are yielding to foreign pressure on the issue. Having escaped the "manipulator" label last week, they could move ahead, said Ichiro Ikeda, a senior sales representative with J.P. Morgan Securities Asia.

The yuan has gained only 1.38 percent against the dollar since the authorities revalued it July 21, 2005, by 2.1 percent against the dollar to 8.11 yuan per dollar, and loosening the peg that kept the yuan's value at around 8.28 for more than a decade.

The yuan is now traded against a basket of currencies, including the dollar, and is limited to moving 0.3 percent above or below each day's parity rate.

Currency traders had been expecting the yuan, which had been hovering above 8 to the dollar for weeks, to break through sometime soon.

State-run financial newspapers appeared to be taking the trend for granted, with the top headline of newspaper delivered before the markets opened Monday suggesting "Little Market Reaction to Yuan's Breakthrough."

"Pressure against the yuan has been mounting unremittingly as other currencies gained against the U.S. dollar," noted a commentary in another newspaper, China Business News.

Top officials have sought to avoid giving the impression that they are yielding to foreign pressure on the issue. However, in a Xinhua report published Sunday, a spokesman for China's central bank, Li Chao, said China would continue to loosen currency controls.