US-China deal rumours boost yuan

The Us has been calling on China to strengthen its currency

The yuan has hit fresh highs amid rumours that the US and China have reached a behind-the-scenes deal.

The yuan reached 7.9025 against the dollar, close to the key level of 7.9000, before settling at 7.9042.

The currency has surged by 0.6% since US Treasury Secretary Henry Paulson visited China last week.

But Chinese officials declined to comment on claims that the rapid rise was a result of a deal on freeing up China's foreign exchange market.

Rumours of a deal were fuelled by news that two US senators who had been threatening to demand tariffs on Chinese goods could delay their action.

'Food for thought'

Senators Charles Schumer and Lindsey Graham said they might delay their bill, following a meeting with Mr Paulson.

"He's certainly given us food for thought, there's no question about that," Senator Schumer said after the talks.

One dealer at a major Chinese commercial bank said market speculation was now centred on belief that the US and China had reached some sort of behind-the-scenes deal during Mr Paulson's visit last week.

"Speculation is that China might have agreed to allow the yuan to quicken its pace of appreciation if its own economic conditions permit, and the US might have promised to reduce its own pressure and let China reform in its own way," the dealer told Reuters.

Last year, China revalued its currency allowing it to float against a basket of currencies, rather than linking it at a fixed rate to the dollar.

Some US politicians have been claiming that the yuan is artificially undervalued, allowing China to keep its export prices low.

As a result, critics in the US argue that the country is being flooded with cheap Chinese exports, leaving domestic rivals unable to compete and threatening jobs in the US industrial heartlands.