Yuan gains the most in 20 years vs US dollar

Recent economic data may indicate that China is going to see another round of yuan appreciation, according to Liu Dongliang, an analyst with China Merchants Bank.

Market insiders said the breakout on Wednesday through 6.1 has a psychological effect on market participants.

There have not been any large State-run banks buying dollars from the currency market since Monday, which has also affected market sentiment.

"We have not seen any big buys of dollars in recent days. The market has a prudent sentiment at the moment waiting for guidelines from policymakers. There may be a wider trading band or more capital market reforms to be introduced," said a Shanghai-based trader with a State-owned bank who preferred not to be named.

The yuan on the onshore spot market since Monday has reversed positions with the offshore yuan market in Hong Kong because market participants did not prepare for further gains after robust advances since June.

The continued positive momentum in Chinese economic data, in the context of the broad-based US dollar weakness, is likely to support a return of portfolio inflows and further appreciation in the yuan this year, said Nick Verdi, a foreign exchange analyst with Barclays Research in a recent note.

Authorities have taken steps in recent weeks to promote the use of the yuan in international trade. On Tuesday, China and the United Kingdom agreed to continue to build London into a major offshore market for yuan trading, underlining the strong financial ties between the two countries.