Currency Cheat Sheet: Chinese Yuan Making Moves Against Dollar, Euro Gains, Swiss Franc Falls

China (NYSE:FXI) is considering a new policy that would both curb inflation at home and support efforts by U.S. and European officials to stabilize markets. After the Chinese yuan (NYSE:CYB) rose 0.8% last week against the U.S. dollar (NYSE:UDN), its fastest pace of appreciation in at least a year. It has risen 3.1% against the U.S. dollar this year, and about 6.8% since June 2010.

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On Thursday, China’s central bank took measures to fix the yuan’s (NYSE:CYB) rate below 6.4 yuan to the dollar. On Friday, the bank set the dollar’s daily trading-range midpoint at 6.3972 yuan, which slid to 6.3950 yuan on Monday. The U.S. dollar (NYSE:UDN) continued the slide, with the midday setting Monday falling to 6.3921 yuan.

DBS analysts say last week’s advances in the yuan appear to have been coordinated with the U.S. Federal Reserve’s announcement Tuesday that they would keep interest rates low for the next two years, and news that four European Union countries were banning short-selling of selected banks and financial institutions.

DBS says U.S. lawmakers may be considering legislation that would force China (NYSE:FXI) to change its currency regime. They also said China may be looking to a stronger yuan (NYSE:CYB) to hold down the price of imports, though the country had a bigger-than-expected trade surplus of $31.5 billion in July while in the U.S., imports outweighed exports, resulting in a trade deficit.

Meanwhile, the dollar fell against both the euro and the Japanese yen on Monday as U.S. stock benchmark indexes all climbed more than 1% Monday morning, making up some of last week’s net losses after five of the most volatile days of trading since the financial crisis. “U.S. dollar weakness this morning was the result of a one-two punch of negative U.S. data and a positive stock market open,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

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The Federal Reserve Bank of New York reported Monday that manufacturing in the region unexpectedly contracted more than expected this month. The Treasury Department reported that foreign investors bought significantly less U.S. debt in June compared to May. The National Association of Home Builders/Wells Fargo reported this morning that builder confidence remained very low in August, unchanged from July.

The dollar index, which measures the U.S. dollar against a basket of six foreign currencies, fell to 72.845 Monday, down from 74.594 late Friday. Meanwhile, the euro rose 1.27% to $1.4455, up from $1,4251 late last week. Europe will be in the spotlight this week as they report second-quarter data for gross domestic product for both the euro zone and Germany (NYSE:EWG) Tuesday. French (NYSE:EWQ) and Germany officials will also meet Tuesday to discuss policy issues to deal with sovereign debt problems in the region. Some reports suggest they may consider issuing a euro-area bond.

The Swiss franc (NYSE:FXF) has been the biggest mover lately, with Switzerland’s central bank successfully making measures to curb the strength of its currency. The euro has risen 1.53% to 1.1344 Swiss francs so far today, while the U.S. dollar has risen from 77.66 centimes on Friday to 78.35 centimes on Monday. There are 100 centimes in a franc.

Also making moves today, the British pound (NYSE:FXB) rose from $1.6281 to $1.6392, the U.S. dollar fell from ¥76.83 late Friday to ¥76.79, and the Australian dollar climbed 1.20% to $1.0486 after falling below parity with the U.S. dollar last week.

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