Yuan picks up steam

In the last two months, the Chinese Yuan has soared by nearly .6% against the USD. Compare that with the 1.2% that the Yuan appreciated in the prior 10 months, and an interesting picture begins to emerge: is China finally relaxing its control over the Yuan, allowing its value to be determined by market forces? The short answer is ‘no,’ but the long answer is ‘yes.’ Specifically, the last two months represent a sop to international

USD ambivalent towards economic data

A slew of economic data was released yesterday, each with the potential to exert pressure on the USD. Traders and economists were eyeing the data closely, in order to gauge the likelihood of a Fed rate hike next month. The first two pieces of data to be released were new home sales and durable goods orders, both of which came in below analysts’ expectations. Quarterly GDP data

AEI examines US current account balance

In a recent white paper, the American Enterprise Institute (AEI), a think-tank with a conservative bend, examined the sustainability of the US current account deficit. The AEI focused its analysis on the net savings and investment side of the account balance equation in its attempt to ascertain the factors that influence capital flows. They concluded that the deficit is ultimately

China is urged to diversify reserves

China’s foreign exchange reserves are currently the largest in the world; analysts are predicting they may soon surpass one trillion dollars. The majority of the reserves have long been parked in USD-denominated assets, mostly Treasury securities. Because the RMB is slowly appreciating against the USD, when China converts these securities back into Yuan, it will incur massive losses. Further, the longer it waits-assuming the

Bernanke is vague about interest rates

In the days leading up to Ben Bernake’s semi-annual testimony before Congress, financial markets ratcheted up their expectations of an August rate hike to 90%, signaling that it was nearly certain to happen. After Bernanke’s testimony, the expectation of an August rate hike-proxied by interest rate futures-declined sharply. Now, investors have two conflicting sources on which to

Bernanke is vague about interest rates

In the days leading up to Ben Bernake’s semi-annual testimony before Congress, financial markets ratcheted up their expectations of an August rate hike to 90%, signaling that it was nearly certain to happen. After Bernanke’s testimony, the expectation of an August rate hike-proxied by interest rate futures-declined sharply. Now, investors have two conflicting sources on which to

US offers incentive for Yuan revaluation

This month marks the one-year anniversary of China’s revaluation of its currency. At the time, commentators and economists predicted China would continue to incrementally revalue its currency, and gradually move towards a market-based exchange rate. In reality, the Yuan has appreciated by less than 1.5% against the USD, and American business interests are once again calling for blood. The American political establishment has responded by introducing a new strategy, one that involves offering China a greater role on the

China Raises Reserve Requirement

Earlier today, China announced that the minimum amount that banks must place with the central bank will be increased by 0.5% beginning August 15. This reserve requirement increase caused the yen to reach its one-week high against the USD. It came as a disappointment to Washington however that there was no further discussion of yuan flexibility, but it is likely that this debate will heat up in the coming weeks and months. Forbes reports:

Assessing China’s Forex Regime Change

A year ago, China adjusted the yuan by 2.1% versus the dollar and allowed it to float within tight bands. Still, US economists believe that the yuan remains grossly undervalued and want it to be able to float more freely. The US trade deficit with China hit $202 billion last year, perhaps largely due to the yuan being so undervalued. Wei Benhua spoke at a press conference in Paris earlier today and indicated that China still