Financial Watch

Amid a clamor in Washington over the value of the Chinese currency, President Hu Jintao used a visit to the United States this week to address what, for any Chinese leader, is a more pressing concern: asserting his nationalist credentials in the face of foreign pressure.

Hu, who arrived in Washington on Monday for the Nuclear Security Summit, told President Obama that China is reviewing its currency policy. But he stressed that any modification “will not be advanced by outside pressure,” according to official Chinese media reports Tuesday, and will be based on China’s “own economic and social development needs.”

European investors who own foreign stocks and shares have been forced to ride a euro roller coaster this year as Greece’s debt crisis has produced successive waves of currency volatility. When Greek Prime Minister George Papandreou announced last month that he may turn to the International Monetary Fund to alleviate the country’s fiscal problems, the euro dropped 1% against the dollar to $1.36.

With decent investment returns hard to come by at the moment, such movements can really hurt a portfolio’s bottom line. The most cautious investors are beginning to wonder whether they should try and protect themselves from such fluctuations; the more ambitious are looking at ways to take financial advantage of them.

HONG KONG – The yuan is likely to remain in the spotlight this week with expectations Beijing that is ready to raise its rate against the dollar by 2%-3%

But we are still a long way from a full yuan float, given the uncertainty surrounding how the currency would respond if the capital account was thrown open and investors took a closer look at China’s fundamentals. Most likely Beijing is expected to revert to a managed peg. as it had between 2005 and 2008, to allow a small daily movement within a band. Still, this does mean in theory the currency can move in both directions.

U.S. stock futures pointed slightly higher Friday as investors eyed earnings from Oracle Corp. and also awaited the latest reading of fourth-quarter U.S. growth.

Futures for the Dow Jones Industrial Average gained 27 points. S&P 500 futures rose 2.7 points to 1,165.40 and Nasdaq 100 futures gained 4.25 points to 1,953.75.

U.S. markets ended mixed Thursday after an early rally evaporated as a strengthening dollar sapped gains in commodities and related shares, and further weak demand for Treasury notes also weighed. The Dow Jones Industrial Average closed up around 5 points, while the S&P 500 fell 1.99 points and the Nasdaq Composite declined 1.35 points.

The bond bears were out in force Wednesday and could be back Thursday, as the government auctions billions more in debt.

Stocks drifted quietly lower Wednesday, but the selling action in the Treasury market was fairly dramatic. The government’s auction of $42 billion in 5-year notes went poorly, pressuring an already sagging Treasury market and driving yields higher.

Now, traders anticipate the auction Thursday of $32 billion in 7-year notes could also be weak. Weekly jobless claims could also be a factor in Thursday’s markets, when the data is released at 8:30 a.m. The other big event is Fed Chairman Ben Bernanke’s testimony before the House Financial Services committee on the Fed’s exit strategies.

The Swiss central bank can buy very large quantities of foreign currency to influence the level of the Swiss franc and keep deflation in check, Swiss National Bank President Philipp Hildebrand said Tuesday.

“We won't allow deflation risks to reemerge, our position is crystal clear,” Hildebrand said before a student audience at the University of St. Gallen. A surge in the Swiss franc could give rise to such a danger, he added.

“It looks like the SNB is raising the level of its rhetoric on curbing any franc gains,” said Janwillem Acket, chief economist at Bank Julius Baer (BAER.VX). “The threat of deflation is a bit exaggerated, and they're trying to impress the markets,” he added.