Chinese hint on peg lifts currency markets

Renewed speculation that China is preparing to reform its exchange-rate regime triggered a surge in Asian currencies yesterday.

Renewed speculation that China is preparing to reform its exchange-rate regime triggered a surge in Asian currencies yesterday.

Traders picked up on a flurry of comments over the weekend from China's central bank and foreign exchange ministry that appeared to open the way to a revaluation of the renminbi's decade-old peg to the dollar.

Zhou Xiaochuan, the governor of the People's Bank of China, admitted that the diplomatic pressure from the Group of Seven nations could result in a quicker decision. "If there is more pressure from outside, it may force us to speed up our reform," he said. "I always think that pressure is not a bad thing. It is often a driving force that pushes you to do your work better."

Meanwhile Wei Benhua, the deputy chief of China's foreign exchange regulator, said the country would "positively but prudently" speed up the reform of its currency peg.

Both appeared to play down the prospects of an imminent move, after speculation that a move could come during the country's "golden week" holiday in the first week of May.

Mr Zhou stressed there was no timetable yet for a change in policy. "We have a very clear target in this regard, but we have our own sequence," he said.

The markets reacted violently, pushing the Japanese yen to a two-month high against the euro and a one-month high against the dollar. Adam Cole, at RBC Capital Markets, in London, said: "The main driver is a further significant gain in expectations of a near-term revaluation."

But Carl Weinberg, at High Frequency Economics, said China did not feel pressured to move now. "Ignore the noise and listen to the music," he said. "The renminbi will not be revalued and the peg will not be loosened this year or next."

The comments follow a warning from the US administration that it wants to see progress towards revaluation.

Over the weekend Peter Mandelson, the European Union's trade commissioner, called for an inquiry into the scale of Chinese textile imports into the EU.

In the US, an amendment to a bill calling for a 27.5 per cent tariff on Chinese imports unless China revalued its currency by an identical percentage received unexpected support from the Senate this month.