Dollar's Global Moves To Determine Yuan Rise - PBOC Researchers

China's yuan is under pressure to appreciate against major global currencies, but the pace and magnitude of any rise will be determined by the U.S. dollar's moves in the global markets, two researchers at the People's Bank of China wrote in an article published in a magazine overseen by the central bank.

The yuan's movements are increasingly determined by a basket of currencies following China's decision in June to drop the yuan's de facto peg to the U.S. dollar, Ji Min and Wang Yue wrote in the August edition of China Money magazine.

'The U.S. dollar dominates the yuan's currency basket, so aside from China's balance of payments surplus, the U.S. dollar's moves will still be the main factor affecting the pace and magnitude of the yuan's appreciation against other major currencies,' they wrote.

China has vowed to make the yuan's exchange rate more flexible by adopting a managed floating exchange rate system and referencing it against an undisclosed basket of currencies.

The researchers said that under China's current exchange rate regime, the yuan will track any increase in the U.S. dollar against the euro, though the yuan's gains against the euro will be smaller. And the reverse is also true: the yuan will track gains by the euro against the U.S. dollar, but the yuan's gains will be smaller.

Ji and Wang said the yuan faces appreciation pressure because China's economic recovery is clearly outpacing that of the U.S.

They also said China's trade surplus could continue to grow in the near term, partly due to slowing domestic investment and imports growth.

China's trade surplus for July hit $28.7 billion, up from $20.02 billion in June and its highest level since January 2009, due to a sharp slowdown in import growth.

The researchers also said the European Central Bank could further loosen monetary policy and cut interest rates to boost growth in the euro zone, which could prompt the euro to decline against the U.S. dollar--possibly as low as $1.0--around the fourth quarter.

At 0411 GMT, the euro was at $1.2906, up from $1.2896 late Friday in New York