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Yuan Climbs to 19-Year High as PBOC Boosts Fixing Amid Lew Visit

March 20 (Bloomberg) -- The yuan rose to a 19-year high after the People’s Bank of China set the currency’s reference rate at the strongest level since Jan. 15 amid U.S. Treasury Secretary Jacob L. Lew’s visit to Beijing for talks.

The central bank boosted the yuan’s fixing by 0.07 percent to 6.2716 per dollar today. Lew, who has pledged to press China to adopt a market-determined exchange rate, said he discussed currency and North Korea issue at meetings with top Chinese leaders including Premier Li Keqiang and PBOC Governor Zhou Xiaochuan. The greenback rose against the euro today as investors sought havens after the Cypriot parliament voted down a bank-deposit levy needed to secure a bailout.

“It may be because the U.S. Treasury Secretary is in Beijing,” said Andy Ji, a foreign-exchange strategist in Singapore at Commonwealth Bank of Australia. “If you look at the U.S. dollar move, naturally the fixing should be for a stronger dollar.”

The yuan gained 0.06 percent to close at 6.2118 per dollar in Shanghai, prices from China Foreign Exchange Trade System show. It touched 6.2113 today, the strongest level since the government unified the official and market rates at the end of 1993. China limits the currency’s movement to 1 percent on either side of the daily fixing.

Lew, who succeeded Timothy F. Geithner, last month cited “progress” by China on the currency and said more needs to be done. He met Chinese President Xi Jinping yesterday and discussed the exchange rate, the global economy and the situation in Cyprus among various issues during the 45-minute meeting, according to a U.S. official who asked not to be identified.

‘Vulnerable to Criticism’

“We believe that the appreciation likely reflects China’s nod to” Lew’s visit, Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note today. “China continues to derive much of its rising trade surplus from the U.S., which makes it vulnerable to criticism of its FX policy at a time when PBOC’s FX intervention to prevent faster appreciation” is very large, he wrote.

In Hong Kong’s offshore market, China’s currency gained 0.09 percent to 6.2080 per dollar, data compiled by Bloomberg show. Twelve-month non-deliverable forwards advanced 0.03 percent to 6.3105 in Hong Kong, according to data compiled by Bloomberg. The contracts traded at a 1.6 percent discount to the spot rate in Shanghai.

One-month implied volatility in the onshore yuan, a measure of expected moves in the exchange rate used to price options, was steady at 1.245 percent.

To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Fion Li in Hong Kong at fli59@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net; James Regan at jregan19@bloomberg.net

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