By Simon Rabinovitch and Pedro da Costa
BEIJING/WASHINGTON, June 20 (Reuters) - Policymakers in the world's economies will closely monitor the Chinese yuan this week for signs that it is actually moving after Beijing announced it would make its exchange rate more flexible.
The Group of 20 nations is set to meet in Canada next weekend to hash out a course for the future as the world gradually emerges from the worst financial crisis since the Great Depression.
China announced on Saturday it would allow more flexibility for the yuan, also known as the renminbi or RMB, signaling it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism.
China's central bank explicitly ruled out a one-off revaluation, saying there was no basis for any big appreciation. That confused the outlook for markets, and prompted skepticism that China's actions would match its words.
'This announcement was timed to appease global leaders as we move towards the Toronto G20 meetings next weekend,' said Sherry Cooper, chief economist at BMO Capital Markets.
Analysts were expecting a moderate reaction to China's announcement in global markets. The most likely outcome is that the yuan will slowly appreciate against the dollar from the current $6.83.
'The currency will move only very gradually. I expect only about 0.2 percent a month until the situation in Europe stabilizes,' said Andy Rothman, a strategist at CLSA in Shanghai.
Still, regional currencies could see some sharp gyrations as investors try to figure out what to make of the policy shift. Already, the Australian dollar had jumped over 1 percent against the U.S. currency in early trade, while the euro also rose sharply.
China's tempering of its initial statement on the yuan prompted criticism from prominent U.S. Senator Charles Schumer, who has argued the currency peg gives Chinese firms an unfair advantage.
'Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off. It vindicates our initial skepticism,' said Schumer, a leading China critic among U.S. lawmakers. 'We intend to move forward as quickly as possible with legislation.'
U.S. officials have not yet decided whether or not to name China a 'currency manipulator,' something that would lend support to any legislative effort to punish Chinese producers through tariffs and other trade barriers.
The European Central Bank and Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, welcomed in a joint statement China's decision on the yuan.
'Given China's important role in the global economy, we encourage the authorities to allow for greater flexibility of the RMB effective exchange rate as a means of promoting balanced growth in China and in the world economy,' they said.
(Writing by Pedro Nicolaci da Costa, Editing by Sandra Maler and Chris Wilson) Keywords: CHINA YUAN (pedro.dacosta@thomsonreuters.com; +1 202 354-5820; Reuters Messaging: pedro.dacosta.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
BEIJING/WASHINGTON, June 20 (Reuters) - Policymakers in the world's economies will closely monitor the Chinese yuan this week for signs that it is actually moving after Beijing announced it would make its exchange rate more flexible.
The Group of 20 nations is set to meet in Canada next weekend to hash out a course for the future as the world gradually emerges from the worst financial crisis since the Great Depression.
China announced on Saturday it would allow more flexibility for the yuan, also known as the renminbi or RMB, signaling it was ready to break a 23-month-old peg to the dollar that had come under intense international criticism.
China's central bank explicitly ruled out a one-off revaluation, saying there was no basis for any big appreciation. That confused the outlook for markets, and prompted skepticism that China's actions would match its words.
'This announcement was timed to appease global leaders as we move towards the Toronto G20 meetings next weekend,' said Sherry Cooper, chief economist at BMO Capital Markets.
Analysts were expecting a moderate reaction to China's announcement in global markets. The most likely outcome is that the yuan will slowly appreciate against the dollar from the current $6.83.
'The currency will move only very gradually. I expect only about 0.2 percent a month until the situation in Europe stabilizes,' said Andy Rothman, a strategist at CLSA in Shanghai.
Still, regional currencies could see some sharp gyrations as investors try to figure out what to make of the policy shift. Already, the Australian dollar had jumped over 1 percent against the U.S. currency in early trade, while the euro also rose sharply.
China's tempering of its initial statement on the yuan prompted criticism from prominent U.S. Senator Charles Schumer, who has argued the currency peg gives Chinese firms an unfair advantage.
'Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off. It vindicates our initial skepticism,' said Schumer, a leading China critic among U.S. lawmakers. 'We intend to move forward as quickly as possible with legislation.'
U.S. officials have not yet decided whether or not to name China a 'currency manipulator,' something that would lend support to any legislative effort to punish Chinese producers through tariffs and other trade barriers.
The European Central Bank and Jean-Claude Juncker, who heads the Eurogroup of euro zone finance ministers, welcomed in a joint statement China's decision on the yuan.
'Given China's important role in the global economy, we encourage the authorities to allow for greater flexibility of the RMB effective exchange rate as a means of promoting balanced growth in China and in the world economy,' they said.
(Writing by Pedro Nicolaci da Costa, Editing by Sandra Maler and Chris Wilson) Keywords: CHINA YUAN (pedro.dacosta@thomsonreuters.com; +1 202 354-5820; Reuters Messaging: pedro.dacosta.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.