Posted on 04/23/2005 8:32:40 AM PDT by TigerLikesRooster
Yen and Chinese forwards leap on US pressure
By Steve Johnson in London
Published: April 22 2005 11:56 | Last updated: April 22 2005 17:30
The yen and forward contracts based on the non-tradeable Chinese renminbi both jumped sharply on Friday amid mounting speculation that Beijing may be ready to ease its decade-long dollar peg.
China has been under increasing pressure over its currency since last weekend’s meeting of the G7 group of leading nations.
President George W. Bush led an international chorus for action, while political pressure is building for the US Treasury to name China as a currency manipulator.
On Thursday both Alan Greenspan, chairman of the US Federal Reserve, and John Snow, the US Treasury secretary, added their voices to the chorus.
Mr Greenspan said that, “sooner rather than later”, China will have to act for stability purposes. “It’s very much in their interest to move,” he added.
Mr Snow said: “They’ve made so much progress, it’s time to act, time to move their currency”.
The discount on one-year non-deliverable renminbi- dollar forwards widened 550 points yesterday and 950 points during the week to 4,600, the widest level since early January. The market is thus implying an exchange rate of Rmb7.818 to the dollar in 12 months’ time, compared to the current Rmb8.278 rate.
Shorter-term contracts moved more sharply still, with the one-month forward widening 81 per cent in a week.
“The probability of a long-anticipated adjustment of China’s current exchange rate vis-à-vis the US dollar appears higher in the next few months than at any time in the past few years,” said Marvin Barth, global currency economist at Citigroup.
“China faces a choice between rising inflation and increasing mis-allocation of capital or allowing the nominal exchange rate to strengthen.”
China has previously said it would not buckle under external pressure on this issue, but JP Morgan speculated that Beijing’s absence from last weekend’s G7 meeting could “reflect an intention by officials to avoid the impression that the regime change was a result of external pressures”.
The yen rallied sharply yesterday, rising 1.1 per cent to a one-month high of Y105.79 to the dollar, 0.8 per cent to Y138.49 versus the euro and 0.5 per cent to Y202.83 against sterling. Many in the market believe that a renminbi revaluation will usher in a broad wave of Asian currency strength.
Junichiro Koizumi, the Japanese prime minister, apologised for his country’s actions before and during the second world war, reducing Sino-Japanese tensions and aiding the yen.
The dollar endured a poor week, falling 1.3 per cent to $1.3084 against the euro, having hit a one-month low of $1.3119, and 1.2 per cent to $1.9160 against sterling.
The greenback was buffeted by jitters over a possible slowdown in global growth. This caused equity markets and bond yields to fall earlier in the week and encouraged buying of “safe haven” currencies such as the Swiss franc, which rose 1.6 per cent to SFr1.1805 against the dollar.
Ping!
I guess the Chinese know how to pick their fights. That suggests they're all-the-more dangerous.
If congress is not very, very careful on this we're going to screw ourselves royally. The Economist has an excellent front (web) page piece on this that should be required reading.
For years I subscribed to the Economist back when it was pro-Reagan, but during the Clinton years they devolved. These days, the only good things I can say about the Economist is that it's soft, strong, and absorbent.
It might hurt certain special interest groups but it will help many more than it hurts, including helping the American consumer. Don't be fooled into the trap of thinking "Wal Mart=America". America is so SO much bigger than Wal Mart.
The American consumer is also the American worker...no work-ee, no consume-ee.
With the continued War of Terror becoming common (rather used to) as a common way of life...
This next go around in the elections people are going to vote their wallets increasingly more.
Probably moreseo than ever.
As a party, if the Republicans don't have their ducks in a row things are gonna change big. Not that the democrats have anything worth a crap to say about the economy...
I will predict here and now how this debate will ultimately be framed in the coming elections... including the post Bush era.
"You might like cheap goods, but if so you better like low wages also. Those two are linked at the hip just like the Chinese peg to the dollar. Prices go down---so do your wages and amount you are taking home...."
The winner of the debate will be the one who strikes a balance. Right now we are WAY out of whack in favor of special interest groups and certain types and demographics of businesses.
Our policy now only benefits some people and some consumers and its increasingly benefiting less and less people (and special interest groups).
The next national go around will seek to define who those special interest groups are.
You might call it 'progress' that Wal Mart is getting stuff for pennnies from China....amounting to hundreds of billions....
I say progress is in putting Wal Mart and their like minded flunkies in their place is real progress
Thats what the debate is going to be. It will ultimately come down to this: having an economy where the vast majority can benefit on a fair feild, rather than the special interest garbage we have now.
Yeah, and how about them stinkin' Visigoths and the way they trashed Rome! Wait; before I get too much further, don't we want to be sticking to article --- it had to do with Americas role in a Sino-Japanese economic conflict.
Wal Mart and Visigoths aren't mentioned at all.
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