CPI drives yuan to new high against weaker dollar

Updated: 2008-01-25 13:28

The yuan jumped to a new high of 7.2065 per US dollar on Friday, its third rise in as many days.

A staff counts Renminbi banknotes at a public transport company in Nanjing, East China's Jiangsu Province December 20, 2007. The yuan jumped to a new high of 7.2065 per US dollar on Friday, its third rise in as many days. [Agencies]

Analysts said the US currency's general weakness and the mounting inflation pressure in China were two major factor's in the yuan's rise.

The central parity rate of the yuan, also called the renminbi, was up 228 basis points overnight, the China Foreign Exchange Trading System reported.

The Chinese currency has been rising since the Federal Reserve slashed the benchmark federal funds rate by 75 basis points to 3.5 percent on Tuesday, in an emergency rate cut aimed at averting a US recession.

On Friday, the dollar continued to fall against other major currencies amid expectations of another rate cut when the Fed meets next week.

The United States was also likely to enact an economic stimulus plan of about $150 billion, but the plan - or rather, the need for it - deepened concerns over a possible US recession.

The new record for the yuan-dollar rate also followed news of China's strong inflation in 2007. Chinese officials announced on Thursday that the December inflation rate remained high, at 6.5 percent, while the annual rate was pushed to 4.8 percent.

Both were well above the government target of 3 percent.

Observers said they believed that the Chinese government would seek to allow the currency to appreciate faster to limit inflation.

The yuan has gained 981 basis points, or more than 1 percent, against the US dollar since the last trading day in 2007 and appreciated more than 12 percent since the peg to the US dollar ended in July 2005.

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