It appears the overnight strength was due to Mutual Fund Monday, Merger Monday, It's Just a Monday Yuan Revaluation Monday.  The Chinese, after tracking their currency to as basket of currencies in a loose band since mid decade, went to a strict dollar peg during the financial crisis.  In late 2009 and early 2010 they began making noise about going back to the band, and this was widely speculation to be a 2nd half 2010 event.  That said, the market still seems surprised and as you can see on your screens is giddy.

Via Bloomberg:

  • The yuan rose the most since a July 2005 revaluation and forwards jumped after China’s central bank ended a two-year peg before a Group of 20 summit this week.  The currency advanced 0.42 percent to 6.7976 per dollar as of 5:30 p.m. in Hong Kong, the biggest gain since July 2005, according to data compiled by Bloomberg. The 12-month non- deliverable yuan forward rose 1.1 percent to 6.6425, implying traders are betting on a 2.3% appreciation.
  • A stronger yuan will help curb inflation in the world’s third-largest economy and shift investment toward service industries from export-manufacturing, the People’s Bank of China said yesterday. 
  • Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis. The currency appreciated 21% in the three years after a managed float against a basket of currencies was introduced in 2005.  Gains this time around may be more moderate because the yuan has already strengthened 16 percent against the euro this year, eroding earnings for Chinese exporters in the European Union, the nation’s largest market.