The dollar weakened on Wednesday, losing ground in momentum-driven trading after China reignited market talk of a currency revaluation. China said on Wednesday it would discuss its pegged yuan at next week's meeting of the Group of Seven rich nations in London. This appeared to signal a slightly different position from only a day earlier, when a senior Chinese official indicated any move on the yuan might be some way off. With talk of a potential yuan revaluation back on the table, the dollar came back under selling pressure, wiping out the previous day's gains.
"The news out of China seems to have been the catalyst for that," said Jeremy Friesen, senior currency strategist at RBC Capital markets in Toronto.
Greg Anderson, senior currency strategist at ABN Amro in New York, agreed, but added that technical factors, particularly stop-loss buy orders in the euro, gave the market extra impetus.
"It was all stop-driven in the euro above $1.3050," he said.
By late afternoon in New York, the euro was up at $1.3081 but off against the yen at 134.72 yen.
The dollar was also weaker against the Japanese currency, off more than 1 percent at 103.01 yen and down at 1.1827 Swiss francs.
Sterling, lifted by above-consensus UK economic growth data and relatively hawkish minutes from the Bank of England's Monetary Policy Committee, gained more than 1 percent at $1.8828.
A senior official said China's finance minister would attend the G7 talks and that there would be a "deep dialogue" on issues including the yuan, which China has pegged at 8.28 to the dollar since the mid-1990s.
The previous day, however, another senior Chinese official had said his country needed time to prepare to make its currency more flexible and that conditions for exchange rate adjustments were not right.
"I don't think there's a lot of extra information out there than there was 48 hours ago," said Jeff Young, head of currency research at Citigroup in New York. "In the very short term, the market may be sensitive to these kinds of statements."
Also on Wednesday, a G7 official said the group intends to use language that would be identical to that used at their meeting last February in Boca Raton, Florida.
Earlier in the day, US President George W. Bush added to international pressure on China to revalue, saying in a press briefing that countries should pursue flexible exchange rates.
"In terms of the (US) trade deficit, it is important for us to make sure that countries treat their currencies in market fashion, working with China in specific on that issue," Bush said.