China’s currency has staged a small but unexpected rally in currency markets
China’s currency has staged a small but unexpected rally in currency markets this week, as the country’s central bank has allowed it to rise 0.72 percent against the dollar, with most of the move coming Wednesday and Thursday.
The State Administration of Foreign Exchange, which is part of the central bank, fixed the initial trading value this morning below 6.4 renminbi to the dollar for the first time in the modern history of the currency.
Economists and traders interpreted the new trading value, 6.3991 to the dollar, as a signal that the central bank might be willing to tolerate a slightly faster rate of appreciation against the dollar, something the United States and other big industrial nations have long pressed China to do.
Allowing the renminbi to strengthen can help China fight inflation, by making imports cheaper. But a stronger renminbi can also hurt exports and employment at China’s many export-oriented factories by making Chinese goods more expensive in foreign markets.
The government’s National Bureau of Statistics announced Tuesday that inflation in consumer prices had reached 6.5 percent in July, the highest level in three years. At the same time, China’s exporters are showing unusual strength despite economic weakness in the West.