Yuan Rises Above 10 Euro Cents Again

The recent "mini-rally" in the U.S. dollar also means that the yuan is rallying against other currencies. It rose above the key 10 euro cent level against the euro (which in inverted terms means that the euro fell below 10 yuan) on Tuesday and with the euro dropping to $1.44 and with the dollar/yuan exchange rate fixed at 6.83, this means that it now costs only 9.84 yuans to buy a euro, down from a high of 10.32 just two weeks ago.

While the yuan is still weaker against the euro than it was early this year, it is a lot stronger than it was in the spring of 2008. And with the dollar rally likely to continue the yuan will rally further against the euro and other currencies.

As this illustrates that the peg isn't necessarily associated with a weaker currency, this will as I wrote last week decrease pressure to end the peg.