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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (34835)	5/16/2008 1:05:47 PM
From: elmatador	Read Replies (1) \| Respond to of 218608

Yuan Gain Versus Currency Basket Exceeds That of 2007 The yuan's gain against the currencies of its major trading partners in 2008 has exceeded all of last year's advance, as China seeks to slow inflation and fend off criticism from European officials. The Westpac Nominal Effective Exchange Rate, a trade- weighted index for the yuan that includes the euro and the yen, has risen 3.5 percent, more than last year's 3.4 percent. The index has strengthened 2 percent this quarter, while the yuan's advance versus the dollar stalled. China has managed its exchange rate with reference to a similar basket since ending a fixed exchange rate to the dollar in July 2005. ``The yuan is more focused on a basket of currencies instead of just the U.S. dollar,'' said Ting Lu, an economist at Merrill Lynch & Co. in Hong Kong. ``This is a relatively significant change in mindset of policy makers.'' Gains in the yuan may slow against the dollar and accelerate versus the euro as policy makers combat inflation near an 11-year high and seek to reduce a surplus with Europe, China's biggest trading partner, said Callum Henderson, head of foreign-exchange strategy at Standard Chartered Plc in Singapore. It's ``wrong'' to suggest China has abandoned its yuan appreciation policy, he said. The yuan has climbed 2.6 percent versus the euro and 5.4 percent against the yen since the start of April, compared with a 0.2 percent advance against the dollar. A chart of Westpac's weighted yuan index, which aims to mimic moves in China's currency basket, shows daily fluctuations were in a limited, ascending range since about April 10. Undisclosed Basket The yuan traded at 6.9946 per dollar as of 5:30 p.m. in Shanghai, compared with 7.0030 yesterday, according to the China Foreign Exchange Trade System. Against the euro, it traded at 10.8478 from 10.7491 at the end of 2007. China is being more responsive than ever to European Union concerns about trade imbalances, EU trade chief Peter Mandelson said on April 25 after talks in Beijing. U.S. Treasury Secretary Henry Paulson praised China for allowing the yuan to gain faster during the Group of Seven meeting in Washington in April even as he urged the government to do more. Since a dollar peg was scrapped in 2005, China has managed the exchange rate against an undisclosed basket of currencies including the euro, yen, South Korean won and British pound. While the yuan has risen 18 percent against the dollar under the new system, it has fallen 8 percent versus the euro, prompting speculation China was limiting its gains against other major currencies. ``Whether China really uses its basket is very open to debate, but our index is as helpful as anyone's in terms of measuring the trade impact of yuan movements,'' said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. Caught in a Trap The yuan's strength against the euro and yen shows speculation China is engineering a slowdown in the pace of currency appreciation to aid exporters is false, Henderson and other Standard Chartered strategists wrote in a report yesterday. ``Our bottom line is that the market is wrong, China still has a strong yuan policy, but not just against the dollar,'' Henderson said. ``Beijing is caught in the trap between rising inflation and slower growth, but the authorities are well aware of the dangers of allowing inflation expectations to become embedded.'' The People's Bank of China said yesterday price controls, curbs on lending and currency appreciation all remain available options to curb inflation. Consumer prices rose 8.5 percent in April from a year earlier, near the fastest pace since 1996. The perceived change in China's policy comes after Singapore, which manages its exchange rate within an undisclosed trading band versus a currency basket, last month unexpectedly announced an ``upward shift'' in the range to curb inflation. Shift in Focus China's factory and property spending climbed 25.7 percent in the four months through April and may accelerate as southwestern Sichuan province rebuilds after the country's worst earthquake in more than 50 years. Gains in the yuan have helped to slow China's export growth to 21.8 percent in April from a year earlier, compared with 30.6 percent in March, the customs bureau said on May 12. The trade surplus was $16.7 billion last month, the same as a year earlier. Officials in China should keep allowing the country's exchange rate to rise to a level that better reflects global market forces, Alan Holmer, the Treasury Department's special envoy to China, said on May 14. ``It's important China move to a much more flexible, market-driven exchange rate,'' Holmer told the U.S. Chamber of Commerce in Washington. China's current growth model is ``unsustainable'' and needs more domestic demand, Holmer said. To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net; Kevin Hamlin in Beijing at 2317 or khamlin@bloomberg.net