The yuan is expected to climb this week in anticipation of an interest rate cut by the United States Federal Reserve, traders said.

 

The Chinese currency ended at 7.2730 to the United States dollar on Friday, down marginally from 7.2725 at the close on Thursday, when it hit an intraday high of 7.2721, its highest level since the dollar peg was scrapped. The yuan opened at 7.2996 on Wednesday, the first trading day of this year.

 

The People's Bank of China, the central bank, reiterated last week that it will use a tight monetary policy to prevent inflation from worsening and an over-heated economic growth. The tight policy includes more interest rate rises, an increase in banks' reserve requirement ratio and a more valuable yuan.

 

With the expectation of more interest rate cuts, more funds may float into China, especially if the country were to raise its interest rates.

 

(Shanghai Daily January 7, 2008)