SHANGHAI: The yuan ended up slightly versus the dollar on Tuesday after the People's Bank of China fixed a higher mid-point, snapping three day's of weakness, with the Chinese currency expected to rise further as inflation accelerated to a 34-month high.
China's inflation in May hit a 34-month high of 5.5 percent, slightly above expectations, supporting the case for tighter monetary policy even as there are signs that economic growth is slowing down.
Dealers said China still faces strong pressure from domestic inflation, although the consumer price index (CPI) was close to market expectations.
"Inflation is still a problem in China, so we still expect the yuan will hit a new high in the near term, but the pace will be gradual," said a dealer at a Chinese bank in Shanghai.
Late on Tuesday, China lifted banks' reserve requirement ratio (RRR) by 50 basis points for the sixth time this year.
Dealers said the RRR hike would not have a direct impact on yuan currency appreciation, but showed the central bank's resolve to beat inflation at a near three-year highs.
Spot yuan closed at 6.4 803 versus the dollar, up from 6.4830 at the close on Monday. It hit an all-time record high of 6.4755 last Wednesday.
The Chinese currency has now appreciated 5.33 percent since it was depegged from the dollar in June 2010, and 1.66 percent since the start of this year.
Before trade began, the PBOC set the yuan's daily mid-point at 6.4822 versus the dollar, higher than Monday's 6.4892. The fixing was set at a record high 6.4795 last Wednesday.
Offshore, one-year dollar/yuan non-deliverable forwards were bid at 6.3760 in late trade, down from Monday's close of 6.3860. Their implied yuan appreciation in a year's time rose to 1.67 percent from 1.51 percent.
