IMF warns of Forex Turbulence

The world's foreign exchange markets bracing themselves for fresh turbulence after weekend talks at the International Monetary Fund failed to ease fears of a currency war.

Dominique Strauss-Kahn said the time for talk was over after the fund's main policy body made little progress in settling the row between Washington and Beijing over China's alleged manipulation of its currency.

"The problem is that we can talk and talk and talk," said the IMF's managing director after it released a communique pledging member countries to "move toward a more balanced pattern of global growth, recognising the responsibilities of surplus and deficit countries".

Strauss-Kahn fears a "race to the bottom" as countries seek to depress the value of their currency to export their way out of recession.

He said: "The language is ineffective. The language is not going to change things. Policy has to be adapted. What we need is real action, and I don't believe that this action can be done in another way, in a non-co-operative way."

Finance ministers and central bank governors expressed concern about the deteriorating atmosphere, which has seen Japan weaken the yen and China warn that American demands for a sharp revaluation of the renminbi would lead to social and economic unrest. Last week, the dollar fell sharply against the yen and the euro.