Yuan storms to record high

SHANGHAI(Reuters): China’s yuan galloped to a record high on Thursday after the central bank set its midpoint at the strongest level ever, in a sign that traders interpreted as possible preparation for a widening of the currency’s trading band.

Spot yuan closed at 6.1707 per dollar after reaching a record intra-day high of 6.1694 in afternoon trade. The slightly softer closing level still surpassed the previous intraday record of 6.1723 hit last Wednesday.

The spot rate’s gain closely matched the corresponding gain in the central bank’s daily midpoint, which came after the dollar index fell overnight.  The euro rose against the dollar on optimism that Italy will resolve its political deadlock.

Though China’s central bank has traditionally set stronger yuan midpoints in response to declines in the dollar index, the correlation has weakened this year.

Still, traders say the People’s Bank of China (PBOC) may have returned to this traditional pattern opportunistically on Thursday, seeing a chance to guide the yuan higher.

After initially expressing skepticism, traders have now increasingly come to expect that the PBOC will announce a widening of the yuan’s daily trading band in the weeks or months ahead.