Chinese Announcement Boosts Market

Monday, June 21, 2010

Stocks are rallying after China's weekend announcement it will allow its currency to appreciate against the dollar, a move that could provide a boost for U.S. manufacturers and exporters.

In a change that pleased global governments and businesses, the Yuan (Renminbi) will gradually appreciate against the dollar. A stronger yuan should allow U.S. manufacturers to be more competitive selling their products in China, one of the world's largest and fastest growing economies.

By late Monday morning, the yuan was trading at 6.7971 to the U.S. dollar in the spot market, strengthening from 6.8272 on Friday - as the central bank delivered on its weekend promise to give up the dollar peg imposed two years ago to help Chinese exporters cope with the global downturn, reports The Associated Press.

For the past two years, Beijing has kept the yuan trading in a much narrower band around 6.83 to $1.

But analysts said the move was mainly aimed at countering criticism of Beijing's currency policies ahead of this weekend's summit of the Group of 20 leading economies and would not result in any significant shifts in exchange rates. The yuan is still subject to a 0.5 percent daily trading range, limiting potential volatility.

U.S. lawmakers have strongly criticized China's exchange rate policy, saying an undervalued yuan has cost millions of American jobs. Washington and other trading partners complain that an undervalued yuan gives China's exporters an unfair advantage. But China has been very careful not to permit the impression that it is responding to international pressure.

Listen to this week's Washington Report for an analysis of China's decision by David Sanger, Chief Washington Correspondent for the New York Times.

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