The yuan races (well, for the yuan) higher as traders speculate that China will let its currency appreciate to stem inflation

05/02/2011 2:18 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The yuan ended last week at 6.4910 to the dollar. That’s the first time since 1993 that the Chinese currency has traded at better than 6.5 to the dollar. (This morning, the currency is at 6.4943 to the dollar.) The People’s Bank of China has set the yuan reference rate at 6.4990 to the dollar. The central bank allows the currency to trade at 0.5% on either side of the reference rate. The currency is allowed to trade up to 0.5 percent on either side of the official rate.

Traders are driving the yuan higher in a belief that China will allow its currency to appreciate at a faster rate in order to fight inflation that some economists project could grow at a 6% annual rate this money. The inflation rate hit 5.4% in March, well above the government’s target of 4% for 2011.

Faster, of course, is a relative term. The yuan is up 1.5% in 2011 through April 29. The consensus among analysts surveyed by Bloomberg is that the currency will climb another 3% in 2011 to 6.30 to the dollar by the end of the year.

Gains in the yuan would be good news to country’s competing with China’s exports and for further gains in China’s stock market.

 

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