Yuan Completes Biggest Weekly Advance in 18 Months Before G-20

June 25 (Bloomberg) -- The yuan had its biggest weekly gain since December 2008 after China set the currency’s daily reference rate at a record high, allowing appreciation before the Group of 20 meeting tomorrow.

The People’s Bank of China said June 19 it would end a two- year peg to the dollar and manage the yuan with reference to a basket of currencies, noting that the European Union is the nation’s biggest trading partner. The currency closed at its strongest level since 1993, a day before President Hu Jintao attends the G-20 summit in Toronto tomorrow.

The yuan rose 0.5 percent this week, and 0.1 percent from yesterday, to 6.79 per dollar as of 5:51 p.m. in Hong Kong. The central bank fixed the reference rate at 6.7896 per dollar, 0.3 percent stronger than yesterday and 0.15 percent higher than the close in the spot market. The yuan is allowed to trade 0.5 percent on either side of the daily fixing.

Unfair Advantage

The euro dropped 0.1 percent, after rallying 0.5 percent against the greenback in the previous two days. The central bank noted over the weekend that 16.3 percent of China’s trading volume is with the EU, compared with 12.9 percent for the U.S.

“The yuan rate is more closely linked with a basket of currencies, especially the euro,” said Liu Xin, a currency analyst at the Hong Kong branch of Bank of Communications Ltd., China’s fifth-biggest lender. “The yuan tends to be moved by the relative strength of the euro versus the dollar.”

President Barack Obama said it is too soon to say whether China’s decision to allow more flexibility for its currency will be sufficient to rebalance the world economy. Obama and Hu are scheduled to have a bilateral meeting June 26 while at the summit.

“The initial signs were positive but it’s too early to tell,” Obama said at a joint news conference with Russian President Dmitry Medvedev at the White House yesterday.

The yuan’s dollar peg had provided China with an “unfair trade advantage,” and the U.S. has told the Chinese government “we expect change,” Obama said. He said his administration “did not expect a complete 20 percent appreciation” because that would be damaging to the world economy.

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