The first official visit of China's President Hu Jintao to the United States next week is a landmark occasion, but it's causing hardly any ripple in the currency options and forwards market.
Investors in currency options and forwards are not betting on a significant rise in the yuan, despite international pressure on China to introduce greater currency flexibility, particularly from the United States.
Instead, financial markets appear to be resigned to the view that Beijing means what it says when it says further yuan flexibility will be carried out gradually.
One-year implied volatilities, or "vols", on yuan currency options were at fairly depressed levels, between 2.8 percent and 3.0 percent on Thursday, after hitting their lowest this week in almost three years. Implied vols reflect the anticipated level of volatility in a currency over a given period of time.
"Lower implied vols are telling us that the market has reduced expectations for bigger one-off moves" on the yuan from Beijing, said Stephen Gilmore, executive director and emerging market strategist for Banque AIG in London.
China announced a 2.1 percent revaluation in the yuan in July 2005, de-pegging the currency's exclusive link to the dollar and referencing it against a basket of currencies. Right after that, one-year implied vols rose as high as 6.75 percent, as markets anticipated more movement in the currency. But vols quickly sank, as it became apparent that Beijing wouldn't bow to international pressure to follow up with another move.
Certainly, markets appear unconvinced that US complaints - that China holding down the yuan's value is the main cause of the $202 billion US trade deficit with that country last year - will hold much sway over Hu.
J.P. Morgan Chase said in a research note this week that the yuan's most likely level in nine months, as currently priced by the options market, is around 7.84 per dollar. That would imply a rise in the yuan of around 2.3 percent over the period.