The yuan strengthened by the most in six years Monday as stronger manufacturing data and the central bank's stance on a gradual appreciation of the currency boosted confidence.
Trading on the over-the-counter market the yuan closed at 6.3486 against the US dollar Monday, 0.6 percent stronger than the close on September 30, the last trading session before the week-long National Day holiday.
The jump was the largest since the yuan's peg with the greenback was disbanded in 2005. Since then the yuan has gained 27.7 percent.
The yuan gained Monday despite the People's Bank of China, the central bank, setting a weaker central parity rate at 6.3586, compared with 6.3549 on September 30. The Chinese currency is allowed to trade at 0.5 percent on both sides of the rate.
Economists said that China's positive economic data and a relatively strong central parity rate are supporting the yuan's value.
Tommy Xie, an economist with Singapore's OCBC Bank, said that although there were concerns in the offshore yuan market over the Chinese economy, the PBOC still allowed the yuan to rise steadily. "This has effectively boosted investor confidence as can be noticed from today's trading."
China's official Purchasing Managers' Index released on October 1 showed that manufacturing grew more quickly for the second month in September to settle at 51.2, higher than 50.9 in August.
The PBOC reiterated on October 4 that it will continue a "proactive," "controllable" and "gradual" reform of the currency, in response to a proposed bill by the United States Senate to force China to let the yuan rise even quicker, according to a statement on its website.
"Considering that inflation has been rising very fast, the actual value of the yuan has appreciated significantly and is approaching a balanced level," the PBOC said.
Li Daokui, a PBOC advisor, has said he sees China's economy to grow 8 to 9 percent this year, and the yuan will rise 4 to 5 percent.
