The yuan extended gains to 20 per cent since China ended a fixed exchange rate to the dollar in July 2005, easing trade tensions with the US as Treasury Secretary Henry Paulson prepares to meet with Chinese officials.
The currency climbed for a fifth day, reaching 6.8918 per dollar. The yuan's advance since the peg was scrapped compares with a 29 per cent gain for the euro against the dollar, 13.2 per cent for the pound and 4.7 per cent for the yen.
China has allowed faster appreciation this year to curb import costs and slow inflation. The talks in Annapolis, Maryland today and tomorrow will focus on energy and the environment rather than the currency.
"Yuan appreciation is the only viable choice for containing accelerated inflation," said Claudio Piron, a currency strategist with JPMorgan Chase & Co in Singapore.
"China is getting a break from foreign pressure." The currency climbed 0.13 percent to 6.8917 a dollar in Shanghai as of 3.30pm, from 6.9004 yesterday, according to the China Foreign Exchange Trade System.
It's risen 1.7 per cent this quarter compared with a 4.2 per cent advance in the previous three months.
The yuan may rise to 6.5 by the end of 2008 and register another 20 per cent appreciation by the end of 2012, said Mr Piron.
Goldman Sachs Group said in a report yesterday that the yuan will gain about 10 per cent in a year as China stems inflation that slowed to 7.7 per cent in May from the almost 12- year high of 8.5 percent in April.
China's trade surplus, which rose to a record in 2007, narrowed in May, for the first time in five months, while foreign-exchange reserves surged 40 per cent to $1.68 trillion in March, flooding the economy with cash and fueling inflation.
Bloomberg