Dollar shaken as yuan rumor denied
(Reuters)
Updated: 2005-08-27 09:16

The dollar was rattled on Friday by market speculation that China might again revalue its yuan currency, but retraced losses after a denial from the Chinese central bank, Reuters reported.

A Chinese woman walks past a poster advertising a foreign exchange business at a bank in Shanghai August 11, 2005. China's yuan strengthened further to a new post-revaluation high versus the dollar on Thursday, a day after the central bank revealed the foreign currencies in its reference basket. [Reuters]

The greenback regained ground versus the yen and the euro after a spokesman for the People's Bank of China said: "The yuan's exchange rate is decided by market forces. The issue of a preliminary revaluation or there being a further revaluation does not exist."

The dollar stood at 109.58 yen at 1032 GMT, down 0.45 percent on the day, having hit a session low of 109.37, but still above a seven-week low near 109.05 yen hit in mid-August.

China revalued the yuan by 2.1 percent on July 21 and dropped its dollar peg in favor of managing the exchange rate with reference to a basket of currencies.

But analysts said further volatility was on the cards as investors positioned themselves for China to move again on the yuan, and speculation was gathering steam ahead of Chinese President Hu Jintao's visit to Washington on Sept. 7.

"You would have to argue that there is a chance that at some stage they would have to make another token movement," said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi.

"But it's still very unclear as there's nothing to stop them from managing a stronger level within the confines of the regime announced on July 21 -- I would veer more toward them sanctioning further appreciation within the confines of what they've already established."

The euro was up 0.19 percent against the dollar at $1.2320.