Mr Obama goes to Beijing

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - The dollar's long-term decline as the world's dominant currency will be on display next week when Barack Obama visits China, pledging to address what he sees as a "deeply imbalanced" economic and financial relationship.

Investors can probably sleep easy about any nightmare scenario unfolding -- China deciding suddenly to float its yuan currency, for example, or to sell its U.S. Treasuries and buy up a bunch of euros and other coinage with its huge current account surplus.

Such moves would be immense, sinking the already battered dollar, kicking U.S. borrowing costs skywards and driving up currencies in regions struggling to get out of recession.

But the various components of this will at least be aired.

The U.S. president has pledged to discuss the two countries' imbalances, which include a yawning trade gap and huge Chinese holdings of U.S. debt.

Much focus, accordingly, will be on China's managed exchange rate to the dollar, widely viewed in Washington as being significantly undervalued at around 6.83 yuan to the dollar.

Although China insists that it is constantly seeking to perfect its exchange rate, it has barely moved in the past year.

So the potential for a "gesture" to Obama on his visit could keep investors, and forex traders in particular, on their toes.