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Section: Daily Dispatches

China's Yuan Has Biggest Gain Against Dollar Since Revaluation

By Christina Soon
Bloomberg News Service
Wednesday, April 19, 2006

http://www.bloomberg.com/apps/news?
pid=10000087&sid=a_kukOBjCtMY&refer=top_world_news

BEIJING -- The yuan had its biggest gain since last year's
revaluation before President Hu Jintao meets his U.S. counterpart
George W. Bush tomorrow, and as currencies China uses to manage its
exchange rate rose against the dollar.

Today's advance, more than this year's average weekly gain and
almost half the maximum China allows each day, suggests the
government may widen the band in which the yuan can move, said Thio
Chin Loo at BNP Paribas SA. Hu is under pressure to allow faster
gains to counter criticism China keeps the currency weak to support
exporters and widen its trade surplus with the U.S.

"The U.S. will continue to pressure China," said Thio, a foreign-
exchange strategist at BNP in Singapore. "Volatility in the yuan has
increased and that's probably a precursor to the central bank
widening the currency band. Given a stronger yen and euro, the
central bank will allow the dollar-yuan to go lower."

The yuan climbed 0.1 percent to 8.0158 per dollar as of 11:57 a.m.
in Shanghai, according to data Bloomberg compiled. It rose as much
as 0.14 percent, almost half the 0.3 percent it can gain or fall
from a daily mid-rate the central bank announces.

The People's Bank of China may widen the overall band to as much as
1.5 percent against the dollar, and the yuan may rally to 7.6 by the
end of the year, said Thio at BNP.

Cheng Siwei, vice chairman of the Standing Committee of the National
People's Congress, or parliament, called for China to widen the
trading band at an appropriate time, the Hong Kong-based Wen Wei Po
newspaper reported on April 4.

Cheng's comments represent his own views, said an official at the
central bank press office, who declined to be named.

U.S. government officials and lawmakers have blamed their country's
trade deficit with China, which has set a record for five straight
years, on an artificially weak yuan.

Treasury Secretary John Snow yesterday said China hasn't allowed
enough movement in the currency after President Bush on April 10
said he wanted Hu to explain at their meeting how he would allow
more gains. The dollar fell in Asia today against all 16 major
currencies that Bloomberg tracks.

"They've been too cautious," Snow said in Manchester, New
Hampshire. "They haven't let it move enough. It's important for it
to move to reflect underlying market forces."

Undersecretary Tim Adams on March 29 said movements have
been "severely constrained" and the yuan "has failed to test the
limits of the current, narrow, intraday trading bands."

China maintains it lets demand and supply determine the exchange
rate and will introduce further measures on the currency according
to the country's needs.

The government will move gradually toward an exchange rate
determined largely by the market, Hu Xiaolian, director of the State
Administration of Foreign Exchange, wrote in an April 16 edition of
the Communist Party's Qiushi journal. Ma Kai, head of China's top
planning body, on March 17 said "there has been no manipulation," as
there has been two-way movement in the yuan.

Pressure from the U.S., as well as the dollar's decline against
other major currencies, will still push the yuan higher.

"It's possible that the yuan will break 8 during or shortly after
Hu's visit," said Ben Simpfendorfer, a currency strategist in Hong
Kong at Royal Bank of Scotland. "If you fully believe that market
forces are driving the yuan rate, it should have appreciated faster
over the past few days. Arguably, there may be political factors at
work here."

The People's Bank of China on Aug. 10 said the yen and Korean won,
along with the euro and dollar, are among the main currencies it
uses to regulate the value of the yuan.

China's central bank buys dollars to keep its exchange rate stable,
adding to its foreign-currency reserves and flooding the banking
system with yuan. The reserves totaled $853.6 billion as of Feb. 28,
overtaking Japan's as the world's largest, the official Xinhua news
agency reported on April 6.

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