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The Chinese yuan rose to its new highest rate against the U.S. dollar since the end of a currency’s peg to the dollar in 2005.

The dollar weakened on the international currency market this week as a lot of the disappointing macroeconomic statistics along with the Fed’s readiness to cut the interest rate pressed on the U.S. currency. Meanwhile high inflation rate in China pressed on the government for a faster yuan’s appreciation.

The annual inflation rate in China jumped to the record high 8.7% in February from the 7.1% rate in January (which was already intolerably high at that time).

The historically low value of the U.S. dollar forces many Chinese residents and foreign investors to convert to the local currency in order to minimize the Forex losses. This helps the government to accelerate the yuan’s appreciation as the demand for it is significantly higher now.

The USD/CNY currency pair traded at 7.0860 as of 9:17 GMT, compared to the close rate of 7.0920 of the previous day. The daily minimum (and the record low value for the pair) was at 7.0845 at 8:46 GMT.

The Chinese yuan rose to the highest rate against the U.S. dollar since the end of the yuan’s peg to dollar in 2005 as the government is believed to start fighting the domestic inflation rate more devotedly.

Yuan has already gained more than 3.4% since the beginning of the year, and, according to the yesterday’s report by the People’s Bank of China, the dollar is expected to depreciate further during the first half of 2008.

China’s Premier Wen Jiabao pledged this week to take more serious actions in order to tame the rising consumer price inflation that is now reaching its record pace in more than a decade. Many analysts note that the China’s government clearly states now that it will use currency exchange rate as one of the tools to control the inflation.

Today yuan’s rate was set at 7.0512 per dollar; that’s almost 0.2% stronger than the yesterday’s 7.0648 per dollar rate. At a current appreciation speed yuan can reach 7 per dollar rate by the first week of April.

The People’s Bank of China released a monetary policy report for the fourth quarter of 2007 today. In this report, Chinese monetary authorities noted that the yuan’s appreciation really helps in fighting the national inflation.

Consumer prices index grew significantly last year, breaking a decade old records on inflation. Although, strong yuan helped to keep inflation from accelerating, CPI was still at a high level by the end of 2007 and the central bank expects that it will remain high for the first half of 2008.

The PBoC also stated that it will continue to regulate the monetary policy aiming for the stronger yuan in order to slow down the country’s inflation rate. They said also that the interest rate will be one of a primary tools of regulation, but it should be used carefully to keep the demand for money down.

In this report central bank also said that the continuous calls by the western countries to change China’s monetary policy along with the conjuncted trade threats can only hurt the relations between them and China and won’t do any good for the problems’ solving.

While there were no mentions of the bank’s precise targets on inflation or yuan’s Forex rate, experienced analysts understand that the whole report is crying out loudly that the yuan will continue its appreciation in 2008.

Today was the fifth straight day when the Chinese yuan grew against the U.S. dollar and other major Forex currencies after the People’s Bank of China introduced its new anti-inflation policy.

During the China Foreign Exchange Trade System trading session today the Chinese yuan gained 0.1%, rising from 7.1580 to 7.1510 per 1 U.S. dollar. Since the beginning of 2008, USD/CNY lost about 2.2%, which if extrapolated will result in 17.6% yearly growth.

The Chinese currency rose to its record high rate against the U.S. dollar today as it has done yesterday and two days ago. The main reason for such growth lies in the new five-year plan revealed by the country’s central bank. According to this new plan, monetary authorities will target the record fast inflation as a major threat and will use a variety of tolls to slow it down.

The commodity prices grow rapidly throughout the world, including such important Chinese imports as oil and copper, this adds more pressure on the local consumer prices. But since these commodities are valued in dollars, appreciating a national currency allows China to negate this growth.

With almost every day on Forex being bullish for the Chinese yuan, today it continued its appreciation against other major currencies and particularly against the U.S. dollar, which is now in a bearish trend after the latest Fed’s rate cut.

While U.S. government is trying to save its economy (and other world economies with it), China is more worried with the consumer inflation and the economy overheating.

Up from the yesterday’s close, Chinese yuan managed to gain about 0.3% today — from 0.7228 to 0.72083 a bit earlier during the Asian session, but retraced back a little after the session ended.

Now, after the China’s monetary authorities are actively acting to revalue the Yuan against the U.S. dollar, there is a good probability for USD/CNY to lead among the best gaining currency pairs on Forex.

Chinese yuan will definitely see a some kind of revaluation against dollar and other major currencies soon. Jean-Claude Trichet spoke today about his latest endeavor to convince China government to make confident steps towards stronger yuan policy. From his words the Chinese central bank understands the concerns of their trade partners and the steps will be done eventually to make yuan less depreciated.

Trichet said that China’s authorities will now be more motivated to make monetary policy changes, but he is still sure that China could do much more in order to make yuan appreciate faster against European currency. Exporters from European Union and producers inside the Union suffer from cheap yuan and currently strong euro, risking to slowdown the economy growth.

Now People’s Bank of China has to decide – how to change the yuan’s trading policy in order to strengthen yuan against world currencies. One possible way to do this is to revalue yuan, changing the current price higher, thus giving the Chinese Forex trading system a new trading zone but within the same boundaries of ±0.5% daily. Another way is to change the daily limit of price change from ±0.5% to about ±1%, increasing the yuan’s rate volatility and making its float more free.

Chinese yuan’s increased for more than 5% in value against dollar since the start of 2007, but it has depreciated for about 6% against euro at the same time.