The Chinese currency has risen to a new high against the dollar, as U.S. lawmakers push to get tougher on China for what they say is an undervalued currency.
Since Beijing removed the yuan's peg to the U.S. dollar in June after pressure from its largest trading partners, the yuan has strengthened only by about one percent.
On Tuesday, the yuan reached its highest level against the dollar after China's central bank set the reference rate at 6.7378 to the dollar.
The yuan's surge in the past few days comes as several U.S. lawmakers, some facing re-election in November, push for tariffs on imports from China. They argue that the yuan is undervalued, making Chinese goods unfairly cheap, which forces U.S. industries to shut down, contributing to high joblessness.
U.S. officials have expressed frustration that China has not let the yuan appreciate. National Economic Council Director Lawrence Summers carried that message to Beijing last week when he met with Chinese President Hu Jintao and other senior officials.
"We have to wait and see what happens," said Andy Rothman, a market strategist in Shanghai for the investment bank CLSA Asia Pacific Markets, "but I think the initial signal from the Chinese government is, we hear Obama's message and will want to try to work with him on the political aspect of this problem."
U.S. Treasury Secretary Timothy Geithner testifies Thursday before a congressional committee on this issue. Some lawmakers have been disappointed that the Treasury Department refrained from calling China a currency manipulator in its past three reports. The next report will come out on October 15.
China's central bank only allows the yuan's value to move half a percent above or below its daily reference rate. China's trading partners argue its managed exchange rate causes global financial imbalances, because it sells more to the world than it imports.
China's trade surplus shrank 30 percent to $20 billion in August from July, but it was still the second-highest monthly surplus this year.
Chinese Premier Wen Jiabao, speaking through a translator, told the World Economic Forum in the northeastern Chinese city of Tianjin Monday that China is pursuing a more balanced trade flow.
"We do not pursue surplus in foreign trade. China runs a trade surplus with the United States and Europe, yet a trade deficit with Japan and the ROK [South Korea]," he said. "Our export growth is rapidly recovering, yet our imports have grown even faster. We cannot and will not pursue development with our door closed."
But some market analysts say if the global economy weakens, China may depreciate the yuan or keep it at a virtual peg to the dollar to protect exports. The U.S. economic recovery is slowing and budget woes are dragging down European demand.
China has always insisted it will take a gradual approach toward a more flexible exchange rate. Its banking authorities stress that the yuan's value should be viewed against its current standard, which is a basket of currencies including the euro, the Japanese yen, and not solely on its exchange rate with the dollar.
The dollar has weakened against other major currencies in the past several days. On Tuesday, it hit a new 15-year low against the Japanese yen, and it remains near a five-month low against the Australian dollar.
