We seem to be very close to resolving this situation: “The Chinese government is preparing to announce in coming days that it will allow its currency to strengthen slightly and vary more from day to day, a move being taken for domestic policy reasons in China but likely to please the Obama administration, people with knowledge of the emerging consensus in Beijing said on Thursday.”
Basically this is what I said yesterday. It’s important to note that though China’s desire to portray this as domestically motivated is itself politically motivated, it’s also true. Chinese people are very poor. China could use, in the aggregate, many more consumer goods. A stronger currency will help people get them.