Yuan climbs to new high on US dollar weakness

The yuan jumped to a 3-1/2-month high against the US dollar on Monday, underpinned by broad dollar weakness, as investors continued to assess the implications for monetary policy of a disappointing U.S. employment report, Reuters reports.

The currency's strength is fuelling speculation the central bank may step in via state banks to cool its rapid ascent, traders said.

Before market opening, the People's Bank of China lifted the midpoint rate by the most since early January to 6.4425 per US dollar, 253 pips firmer than the previous fix of 6.4678.

Monday's guidance, the strongest since Feb. 10, was largely in line with their forecasts, according to analysts and traders.

In the spot market, the onshore yuan opened at 6.4320 per US dollar and climbed to a high of 6.4265, the firmest since Janaury 29. By midday, it was changing hands at 6.4295, 13 pips firmer than the previous late session close.

The yuan swung around 6.43 per dollar in morning trade.

Several traders said the market refrained from testing new highs to gauge the central bank's position on the sudden gains.

The current spot price is not far from this year's highest level of 6.4245 per dollar hit in January, said a trader at a foreign bank, adding some investors were afraid state-run banks could be directed to step in to rein in the currency's strength.

"It appears that the PBOC holds a cautious view on any resurgent RMB appreciation pressure driven by the new US dollar sell-off, in particular with the slowing China recovery momentum," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.