China Unlikely To Shock The Status Quo. By Nicholas Hastings

The chances of an early yuan revaluation look more remote than ever.

For other major currencies, this means no shocks to the status quo--narrow trading ranges will prevail and investors will remain cautious as the world economy recovers only gradually.

Although the U.S. continues to pressure China to ease the yuan's fixed peg to the dollar, with more than 100 members of Congress calling for the country to be named as a currency manipulator, Beijing has made it amply clear that such a shift is unlikely.

Chinese Premier Wen Jiabao took the closing of the National Peoples' Congress in Beijing over the weekend as an opportunity to lay out his position.

He said that while China still aims to have a market-based managed-float regime, he doesn't consider the yuan to be undervalued at the moment.

This is hardly surprising, given that the yuan has risen in tandem with the dollar since the start of the year. This ensured that Chinese exports became less competitive in those countries that have currencies that have also fallen against the dollar.

Wen also argued that the stability in the yuan, given its close peg to the dollar, has provided stability and aided the global recovery from the credit crunch.

But, it is the increasing pressure from the U.S. for Beijing to ease that peg and let Chinese exports become more expensive relative to U.S. exports that appears to be making a Chinese policy shift even less likely.

Wen pointed out that international pressure for reform of the yuan exchange rate regime is counterproductive and made it clear that he considers efforts by other countries to push their currencies lower against the yuan as a form of trade protectionism.

Adarsh Sinha, a currency strategist with Barclays Capital in London, said Beijing could still relent and start a "gradual and moderate" appreciation of the yuan in April or May.

He felt that Wen's comments were more ruling out the chances of a more dramatic one-step revaluation.

However, even a gradual release of the yuan's peg could prove inappropriate just now.

As Beijing battles with rampant growth and signs of rising inflation, the Peoples' Bank of China might find other forms of monetary tightening more effective.

As the strategy team at Commerzbank warned: "An appreciation of the yuan is unsuitable as a means of fighting inflation as corresponding appreciation expectations would probably fuel capital inflow to China."

So it is likely that Washington's admonitions will continue to fall on deaf ears and the risk of a surprise yuan move upsetting major currencies has probably fallen for now.

Early Tuesday, market sentiment remained negative on concern over tensions between the U.S. and China as well as the general feeling that a eurogroup bailout plan for Greece-- involving an unspecified emergency finance facility--won't make the country's debt any more attractive.

By 0745 GMT, the dollar was down at Y90.27 from Y90.48 late Monday in New York, according to EBS.

The euro also declined to $1.3666 from $1.3670 and to Y123.36 from Y123.69.

Major currency movements are expected to be curbed by speculation that the Bank of Japan might ease its monetary policy even further and the U.S. Federal Reserve will signal a shift towards exiting its easy monetary stance. Both central banks will complete their recent policy meetings over the course of Wednesday.

The pound, meanwhile, is being hit hard early in the day--falling to $1.4993 from $1.5049 on-concerns that the Labour government's budget plans won't be enough to reduce the deficit.