yuan breaks key barrier againts dollar, page-3

HONG KONG (Market Watch) -- The Chinese yuan broke through a symbolically important barrier against the dollar on Monday after the central bank set the currency's exchange rate target below the 8.0 mark for the first time.
The yuan opened at 7.9976 to the dollar on Monday morning in Shanghai trading. The People's Bank of China had set the day's official target at 7.9982. Friday's rate was 8.0082.
"If you look at the trend, it's in line with what we've seen. I don't think it signals any major shift in exchange rate policy," said Tai Hui, an economist at Standard Chartered in Hong Kong. "The market was disappointed that it didn't happen sooner."
In July, the Chinese government raised the yuan's value against the greenback by 2.1% and announced it would let the currency fluctuate within 0.3% of a daily "central parity rate". Previously, the yuan had been pegged to the dollar.
Since the revaluation, it has appreciated a further 1.38% through frequent, carefully regulated adjustments. Its rise slowed in April, however, as growing foreign pressure on China to revalue faster appeared to backfire.
The yuan's rise past the 8.0 mark is the latest gambit in a currency chess game between Beijing and Washington. Many observers expected the barrier to be breached around the time of Chinese President Hu Jintao's visit to the U.S. last month.
"It's almost like the Chinese are trying to flex their diplomatic muscle, saying they're not influenced by external forces," said Standard Chartered's Hui.
Last week, the U.S. Treasury Department's foreign exchange report refrained from labeling China a "currency manipulator", despite comments from U.S. officials expressing dissatisfaction with the slow pace of exchange rate reform.
Analysts said Monday's move probably doesn't signal acceleration in the yuan's rise.
"China's exchange rate regime will be determined by domestic conditions, and we'll see a fairly steady path," said Hui. "The most important thing is to watch out for the development of a derivatives market and hedging products in China. Once that happens, we'll have a better environment for currency volatility."
On Friday, China reported a larger than expected April trade surplus of $10.5 billion, a 15% increase from a year before. The news is likely to increase foreign pressure on regulators to let the yuan rise further against the currencies of China's trade partners.