Revaluation really was imminent

Wow, the yuan-dollar peg is now a moving yuan-basket peg. Only a 2% move for now, but stay tuned for further developments. The 10 yr yield is up to 4.28 today, so 10y treasuries lost about 2.5% in value in a single day. For some historical perspective, see here for a graph of dollar-yen in the wake of the Plaza Accord -- the dollar dropped by more than a factor of 2-3 against the yen in the following decade.

BEIJING, July 21 - Following months of political pressure, China today revalued the yuan to 8.11 for every dollar, scrapping a decade-long peg to the currency in favor of a more flexible band using a "basket of currencies."

China's announcement, which has been anticipated and debated by economists and government leaders for months, is the first time in a decade that China has raised the value of its currency, also known as the renminbi, effectively making the yuan and exports more expensive against the United States dollar.

The move represents China's first step toward the more flexible exchange rate that the United States, Europe and many other countries have called for in recently. Until the announcement, the yuan sold for 8.27 for every dollar, a rate that has remain unchanged since 1998.

The change falls far short of the 10 percent to 15 percent revaluation demanded by many in Washington, where the Bush Administration and Congressional leaders have been calling for a higher yuan, in part to alleviate America's growing trade deficit with China.