China's central bank expanded the yuan's reference rate against the dollar to another record high on Friday, in a nod to calls from the U.S. to loosen growth restrictions on the currency's value.
The People's Bank of China set the official midpoint against the U.S. dollar to a record high, moving the rate up 0.07 percent to 6.2787, after U.S. Treasury Secretary Timothy Geithner said on Thursday that China needs to ramp up the opening of its economy and allow its currency to appreciate to fair market value. The rate has risen 0.34 percent over the last three days.
The rate increase comes before Geithner and Secretary of State Hillary Clinton are scheduled to meet with Chinese Vice Premier Wang Qishan and State Councilor Dai Bingguo for the U.S.-China Strategic and Economic Dialogue in Beijing next week.
The economic picture for China remains uncertain, with recent figures showing gross domestic product grew at a slower-than-expected 8.1 percent rate in the first quarter, according to the Wall Street Journal. The appreciation of the yuan could lose steam if the economic trends continue.
There's fear in the market these friendly fixings will be reversed once the dialogue is finished, Jonathan Cavenagh, a currency strategist at Westpac Banking Corp., told Businessweek in Singapore. We've certainly seen that in the past. The theory is the broader macroeconomic backdrop for China is still very uncertain.
The yuan was up 0.03 percent this week, within its allowable 1 percent range within the fixed rate, and it was up 0.14 percent on the day at 6.299 to the dollar.