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Fed decision to buy bonds may aid yuan

THE yuan may continue to gain against the United States dollar within a narrow range because the greenback is set to be weakened as a result of a larger supply because the US Federal Reserve is set to buy more treasury bonds.

The Chinese currency gained for a fifth day against the US dollar last Friday and ended last week at 6.8293, according to the China Foreign Exchange Trade System. The yuan closed at 6.8334 at the end of the previous week.

The Fed last Wednesday announced it will buy up to US$300 billion of treasury bonds and increase its purchase of agency mortgage-backed securities, an act which is considered to boost the supply of dollars, thus weakening the greenback.

"The yuan will be rather strong in the second quarter since China is likely to show more signs of economic recovery than other parts of the world, and that would boost its exchange rate," said Hao Daming, an analyst at Galaxy Securities.

China has allowed the yuan to weaken 0.06 percent this year as its exports slumped in the first two months amid a global recession.


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