In another move likely to shake things up with China, the US Senate Finance Committee today approved legislation that runs in line with previous legislation proposals by the US Senate Banking Committee. According to the measure, which was approved by an overwhelming majority of 20 to 1, the US Treasury Department would completely rethink its approach on currency intervention / manipulation by other economies. The approval also stands as a firmer footing against Chinese exporters which have in recent years ruffled many a feather on Capitol Hill. “The existing law allows administrators in the executive branch to pussyfoot around too much,” commented Senator Charles Grassley co sponsor of the proposal. Subsequently, proponents of the legislation are seeing the measure as a positive fix to the “problem of imposing meaningful consequences if a country fails to take action” in allowing its currency to appreciate to market values. Incidentally, with the legislation likely to cause some concern for Chinese policy officials, US Treasury Secretary Henry Paulson continued on his efforts, making a fourth trip to China. In order to hopefully calm tensions over recent events as they have unfolded over the past couple of months, Paulson is looking forward to meeting with head officials in hopes of heading off any further contention. Nonetheless, speculation is on the side that efforts may be made towards a more flexible currency regime, helping the Chinese yuan to gain against the US dollar in New York at 7.5635.

Singapore Exchange’s Net Profit More Than Triples For Fourth Quarter
A sure sign of things to come, Singapore Exchange today announced fourth quarter earnings that far exceeded expectations. Asia’s second largest listed market stated quarterly net profit that tripled as trading surged in equities and derivatives. Notably, net profit surged upwards of $116.4 million, higher by almost 45 percent in the three months ending in June. The surge was widely supported as government regulations in China allowed more domestic investors to go abroad, incidentally into markets including Singapore and Tokyo. Emerging market investments from other countries have also boosted interest in the Asian economy, and looks firm enough to continue in the near term. As a result, further gains are expected to come from SGX shares, already higher by 77 percent this year.

Economist Calls For Revaluation
A prominent economist in China has sided with much of the broader world, calling for revaluation in the underlying Chinese currency. Citing a comparable situation to Japan in the 1980s, Zhong Wei, a professor at Beijing Normal University sees a revaluation in the blatant benefit for the Chinese economy. “If the current policy continues, China could see problems similar to those of Japan in the 1980s…domestic capital flowed out of the country.” In addition, an appreciated currency may very well help to curb current inflationary pressures spread throughout the economy. However, many continued to disagree with the notion as an appreciation in the currency would “shake our advantaged manufacturing industry to the core”, according to Mei Xinyu, of the Ministry of Commerce.

Asian Markets Collapse, Follows US Markets Lower
Falling the most in four months, Asian markets around the world followed the Dow Jones Industrial Average lower in the overnight as investors continued to pair back on riskier assets, shifting to safe haven instruments. Hong Kong shares were lower led by exposure to shares in HSBC Holdings Plc, the world’s third largest bank. Amid potential pullbacks in the subprime sector as well as speculation of yesterday’s US housing numbers, stock in HSBC were pummeled as the bank holds considerable exposure to the US market. The stock slipped 1.5 percent to HK$141.10. As a result, the Hang Seng index dropped the most in 4 months, losing 641.28 points or 2.8 percent to 22,570.41.

Richard Lee is a Currency Strategist at FXCM.