Dollar edges up after months of declines that had developing nations worried about exports

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Dollar edges up but developing nations still worry

NEW YORK — The dollar edged up Thursday, breaking a decline that’s caused developing countries to worry that the sinking U.S. currency is making their exports expensive and threatening their fledgling economic recoveries.

A lower dollar — and China’s yuan, which is effectively pegged to the dollar — makes other countries’ goods relatively more expensive. China has recently signaled that it might be ready to let its currency rise.

American manufacturers contend that China’s yuan is undervalued by 20 to 40 percent against the dollar, giving the country a huge trade advantage. On the other hand, the yuan’s low value allows U.S. consumers and major retailers, such as Wal-Mart, to buy Chinese imports cheaply.

Finance ministers from 21 Asia-Pacific countries agreed Thursday to embrace more flexible exchange rates. Their official statements downplayed China’s refusal to let the yuan appreciate over the past year and a half. But their commentary signaled the distress countries are feeling as their currencies rise against the yuan and the dollar.

“The weaker yuan is hurting and slowing the recovery” as other countries’ exports face tough competition from cheaper Chinese goods, said Forex.com chief currency analyst Brian Dolan.

In the past two months, Brazil, Taiwan and some countries have taken steps to try to contain the rise in their currencies. Meanwhile, European Central Bank President Jean-Claude Trichet has warned about the dangers of exchange-rate volatility. He said he supports the Obama administration’s strong-dollar stance.

In late trading Thursday, the 16-nation euro dipped to $1.4866 from $1.4976 late Wednesday, and the dollar rose to 90.32 Japanese yen from 89.84 yen. The British pound edged up to $1.6570 from $1.6554.

In a joint statement, officials at the 21-member Asia-Pacific Economic Cooperation summit in Singapore, including the U.S. and China, agreed to pursue flexible exchange rates. Their statement reflected concerns over China’s linking of the yuan to the falling dollar despite its pledges to move toward market-based exchange rates.

Seeking to bolster the dollar, U.S. Treasury Secretary Timothy Geithner said in Singapore that “it is very important for the U.S. that we have a strong dollar, that we sustain confidence in our financial system.”

The APEC finance ministers pledged to maintain government stimulus measures as long as the private sector remains weak.

That’s going to hurt the dollar’s value, Brown Brothers Harriman analysts said. The dollar tends to lose value as a result of better-than-expected economic reports or government stimulus measures as investors pursue riskier, high-yielding assets in other countries.

That’s prompting a flood of money into developing countries. Many of these countries offer higher interest rates on their securities than the major economies do. But the resulting rise in the value of their currencies makes their exports more expensive.

The Treasury is aware about the “angst” of other countries over dollar weakness, Dolan said. But there’s nothing that’s going to help the dollar rise in the current environment unless the Federal Reserve signals it will boost interest rates. Thursday’s small gain is “nothing more than a blip on the screen,” he said.

China has poured hundreds of billions of dollars into its economy and curtailed the rise in its currency to make its exports more competitive. Beijing is now signaling that it could refine the yuan’s exchange rate by taking account of changes in major currencies other than the dollar.

By omitting its often-used language of keeping the yuan “basically stable at a reasonable and balanced level,” China’s central bank is suggesting a policy shift on yuan’s exchange rate, analysts said.

But Beijing isn’t likely to allow an “aggressive” appreciation in the yuan, said Credit Suisse analysts. The central bank doesn’t think the export recovery has been strong enough to allow such a rise, they said in a research note Thursday. On Monday, World Bank chief economist Justin Yifu Lin, the first Chinese national to serve in that job, said China should not be forced to let the yuan rise.

The Obama administration has chosen not to cite China as a currency manipulator. But it has stressed the importance of “rebalancing” global trade flows. President Barack Obama is expected to address foreign-exchange volatility when he arrives at the APEC summit in Singapore later this week, Dolan said.

While China let the yuan, officially known as the renminbi, appreciate starting in mid-2005, it curtailed that rise starting last summer as it bought up huge amounts of U.S. Treasurys while the global recession wracked trade. China is now the largest holder of U.S. securities.

In other late trading Thursday, the dollar rose to 1.0162 Swiss francs from 1.0086 francs late Wednesday, and advanced to 1.0546 Canadian dollars from 1.0463.

AP Economics Writer Martin Crutsinger in Washington contributed to this report.