Thursday, September 13, 2007

Yuan Up To Record Value Against Dollar

by Stewart Douglas

The Chinese yuan has closed at a record high against the dollar, as continuing weakness in the US economy sees even further devaluation of its currency.

At the close yesterday, the yuan was up at 7.5596 to the dollar, its highest ever rate against the dollar. Since the Chinese authorities ended the fixed rate of exchange policy of the yuan, its value has increased by nearly 7.5% against the dollar.

The recent strength has been attributed to Chinese economic growth, and recent consecutive interest rate rises in an attempt to calm inflation, which is even still at a ten-year high. And with more rate rises likely to be on the way, investors are piling in to the yuan in favour of the dollar, which is poised to see further falls with the Federal Reserve contemplating interest rate cuts.

The Chinese government is facing political pressure to allow the yuan to increase in value against the dollar, with US analysts criticising the Chinese policy of hampering growth to make its exports more appealing and to increase its trade surplus with the US.

Chinese and US officials are set to meet next week to discuss long standing economic differences, including the apparent lack of flexibility in the value of the yuan, which is cited as being detrimental to US firms and the economy as a whole.

With pressure from the US, and further afield, to help bring stability to the global market, it is thought that China will be prepared to cooperate and allow the yuan more freedom to move with market forces in future.

The strength of the yuan combined with the prospects of boosted corporate investment led the Shanghai Composite Index, China’s main stock exchange, to grow by 113.64 points to 4323.97 - a growth of almost 3% on the day.

 

 

 

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