DJ Forex Focus

There could be more pressure on China to let the yuan rise this time around.

Whether Beijing actually releases the yuan's peg against the dollar altogether or allows just a limited revaluation is another question.

But, with the global economic recovery failing to prove as robust as expected and international investment flows starting to flood back into China just as inflation becomes a problem, pressure on Chinese officials to make a yuan policy move is on the rise.

Between July 2005 and July last year, the Peoples Bank of China effectively adopted a crawling peg for the yuan, allowing it to increase gradually against the dollar and stemming criticism that the country was manipulating its currency to keep its exports competitive.

Since the start of the global recession, China has been more reluctant to let its currency rise - a policy that has helped to keep its economy relatively strong and in a position to help the world to pull itself out of recession.

However, in recent weeks there has been a subtle shift in attitude towards the yuan.

Although some economies have staged enough of a recovery to even start exiting their emergency credit crunch strategies, the prospects for many other major economies including the U.S., euro zone and Japan, are failing to live up to expectations.

Third-quarter U.S. gross domestic product data Thursday may have showed an unexpectedly strong rise but there are already doubts whether this can be sustained in the fourth quarter.

Meanwhile, the Bank of Japan is still looking for deflation to have a grip on the Japanese economy in 2011 and German retail sales are still tumbling despite hopes for a recovery.

As a result, the yuan's weakness is once again under scrutiny with officials from Europe, Canada and Japan all calling on China this week to allow its currency to rise.

This is certainly the message they are expected to take to the next meeting of finance ministers of the Group of 20 developed nations starting at the end of next week in Scotland.

Beijing has, of course, already suggested it will continue to resist any such pressure, with the deputy director of the Department of Foreign Trade saying that there wouldn't be a major adjustment to the exchange rate "until there is a noticeable improvement in exports."

Others might well argue that with net exports to the U.S. alone running at $20 billion a month, China may not be doing so badly after all.

But, it isn't just the overseas pressure for a revaluation that will have grown.

According to Bank of New York Mellon, international investors have returned to Chinese equity markets with a bang.

This will only add to excess liquidity and threaten the Chinese economy with more inflation pressure. At the moment, China's consumer price index may still be falling but its pace of decline is slowing.

As the Bank of New York Mellon stated: "The very last thing that the PBOC needs to deal with is a tidal wave of international capital into China if it is to carry out its job effectively."

So although G20 finance ministers will probably leave Scotland with nothing more than goodwill bottles of whisky, the meeting will probably have opened the debate on what China should or will do next in terms of easing the yuan from its peg against the U.S. currency.

Early Friday in Europe, the rise in risk appetite driven by the positive U.S. GDP numbers was already showing signs of waning as the market took a more realistic view of global prospects. Both the Bank of Japan's deflation warning and Germany's disappointing retail sales were taking their toll and the dollar was staging a small rebound.

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By 0816 GMT, the euro was down at $1.4814 from $1.4835 late Thursday in New York, according to EBS. The dollar slipped against the safe-haven yen to Y91.05 from Y91.51 while the euro fell to Y134.87 from Y135.73.