China Lets Yuan Appreciate

The Chinese yuan gained on the prospect that the central bank will stop keeping the currency at current rate, removing the a 21-month-old peg, and allow it to appreciate, attempting to keep the inflation under control and also to make imports cheaper.

The People’s Bank of China revealed its plan to sell the three-year bills to drain the cash from the financial system for the first time since 2008, causing the speculation that this may be followed by the increase in the benchmark interest rates, the first increase for more than two years. Twelve-monthnon-deliverable forwards have advanced previously to 6.6395 per dollar, reflecting bets that the Chinese currency will rise from the spot rate of 6.8256 by 2.9 percent.

Timothy F. Geithner, the U.S. Treasury Secretary, expressed his opinion that China can make its own decision on when to revalue the yuan. According to him:

This is China’s choice, it’s their judgment to make. I am confident that China will decide it’s in their interest to resume the move to a more flexible exchange rate.

Yet there is remains the possibility that the U.S. will blame China for currency manipulations, if China will try to hold the current price of its currency.

USD/CNY fell as low as 6.8249 today after opening at 6.8260 but went up to 6.8264 as of 21:10 GMT. EUR/CNY dropped today to 9.1056 by 21:15 GMT from the opening price of 9.1421.

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