China's yuan touched a 17-year high as Democrats and Republicans continued to argue over competing plans to cut the US deficit, unsettling global financial markets and weighing on the dollar.
The central bank set the daily fixing 0.07 per cent stronger at 6.4426 per dollar, the highest level since July 2005. The Dollar Index, which tracks the greenback against the currencies of six trade partners, was steady after dropping 1 per cent in the previous two days.
US lawmakers must agree on a plan to tackle debt and raise the borrowing ceiling before an August 2 deadline or go into default. China's economy grew 9.5 per cent in the second quarter from a year ago, data this month showed.
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"Economic growth is still intact and that's positive for the yuan," said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. "The stronger reference rate also reflects the continued weakness of the dollar."
The yuan closed at 6.4433 per dollar, little changed from 6.4414 on Tuesday in Shanghai. The currency touched 6.4375 earlier, the strongest level since the country unified official and market exchange rates at the end of 1993.
In the offshore market in Hong Kong, the yuan rose 0.05 per cent to 6.4360. Twelve-month non-deliverable forwards slipped 0.04 per cent to 6.3718, a 1.1 per cent premium to the onshore spot rate.
China should accelerate the pace of yuan appreciation, Nouriel Roubini, the co-founder and chairman of New York-based Roubini Global Economics, said.
Four days down
China's money-market rate declined for a fourth day on speculation the central bank will drain less funds from the financial system to help ease a cash squeeze.
The People's Bank of China yesterday issued 1 billion yuan (Dh569 million) of one-year bills, the least in a month, and offered no repurchase agreements.