The yuan strengthened beyond 6.4 per dollar for the first time in 17 years, supported by the Federal Reserve’s pledge to keep interest rates at a record low through mid-2013 and signs China will use currency gains to help rein in inflation.
The Fed said on Aug. 9 it would maintain its record-low policy rate of zero to 0.25 percent at least through mid-2013 to revive a recovery it described as “considerably slower” than anticipated. The Federal Open Market Committee is “prepared to employ” additional tools to bolster the economy, said the monetary authority, which bought $2.3 trillion of debt since December 2008 during two rounds of so-called quantitative easing.
The U.S. will likely announce a third round of asset purchases, which would spur global inflation and boost the flow of “hot money” to China, the Beijing-based National Development and Reform Commission said yesterday. Kenneth Rogoff, a Harvard University economist, a day earlier also forecast the Fed will pump more dollars into the financial system.
Increased supply contributed to the dollar being the worst performer of 16 major global currencies since quantitative easing began. Australia’s dollar jumped 48 percent versus the greenback since 2008, the Swiss franc climbed 46 percent and Brazil’s real rose 43 percent. The yuan gained 6.7 percent.
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