China adjusts currency fluctuation bands

In the latest chapter of the revaluation saga, China will allow the Yuan to fluctuate more against most major currencies, excluding the USD. While this move has already ignited speculation among currency traders that another revaluation is imminent, closer analysis reveals this latest decision was motivated chiefly by practical considerations. For all intents and purposes, the Yuan remains pegged to the USD but can freely fluctuate against other currencies.

Policymakers reflect on Yuan revaluation

Today marks the two-month anniversary of China’s landmark decision to revalue the Yuan. American policymakers have since had much time to reflect on the move, and the consensus is predictably, that China still needs to do much more. In theory, because China permits the Yuan to fluctuate .3% daily against a basket of currencies, the Yuan should appreciate by .3% every day. However, China has massive forex

New report defends Asian forex reserves

Two prominent economists recently conducted a thorough analysis of Asia’s increasing foreign exchange reserves, the majority of which are held in US Treasury Securities, which are of course denominated min USD. The economists argue that the while the collective forex reserves of Asian nations have indeed skyrocketed in recent years, this does not necessarily signify that outright currency manipulation is taking place. Rather, they believe that these nations use their reserves as tools of monetary policy. For example, Japan may have grown its reserves to try to mitigate the possibility of deflation. Other nations view their

Will UK continue to lower rates?

Last week, the UK Central Bank voted to lower interest rates for the first time in two years, to 4.5%. Economists and analysts are already mooting the possibility of another decline before year-end, in anticipation of lower-than-expected UK economic growth. Several UK policy makers, however, are reluctant to lower rates any further, lest they incite another housing bubble. Rising home prices have already fuelled excessive borrowing and a proportionate rise in consumer spending. Officials, however, are worried that these spending levels have reached dangerous levels, rising twice as fast as wage growth statistics would seem to imply. The upshot is a very low likelihood of continued rate cuts. The Economist reports:

It is unlikely that Britons are in for a series of interest-rate cuts. The Bank of England knows that no good will come of re-inflating the housing bubble, which would only result in worse pain down the road, as more consumers fall into the trap of too much debt.

Read More: http://www.economist.com/agenda/displayStory.cfm?story_id=4246182

UK lowers interest rates

Britain recently became the first developed country in two years to lower interest rates, guiding its repo rate downward to 4.5%. However, representatives from the Central Bank effectively dismissed speculation that other rate cuts would follow, calling the move “economic fine-tuning.” They will continue to target inflation, which is likely to resurface once Britain’s economy resumes its expansion. Many analysts believe policy-makers in other developed regions will soon follow suit, ushering in a period of tight monetary policy. Those analysts may be forced to wait, however. The Financial Times reports:

The European Central Bank maintained its main interest rate at 2 per cent. Recently, evidence from business surveys appeared to back its view that conditions in the eurozone were improving.

Read More: Bank of England makes first rate cut in two years

British rate cuts appear ‘imminent’

The release of the minutes of last month’s meeting of Britain’s Central Bank revealed a growing minority of members in favor of lowering interest rates.  The official vote was 5-4 in favor of maintaining interest rates at current levels. However, few economists and pundits had reason to believe the vote would be so close. While many traders had already begun to price lower interest rates into bonds prior to last month’s meeting, it seems a rate cut at the next meeting is a near certainty. Recent economic data not only suggests the economy is slowing down, but also that inflation is likely to be lower than expected. As a result, both the members of the Central Bank targeting inflation indices as well as those targeting general economic performance, would seem to have a solid basis for lowering rates. The Financial Times reports:

Sterling had already been on the ropes prior to the MPC announcement…Against this backdrop sterling fell to a 19-month low in trade-weighted terms.

Read More: Sterling falls as BoE votes 5-4 against rate cut

British Central Bank mulls rate cuts

At its last meeting, Britain’s Central Bank voted to leave the national interest rate unchanged at  4.75%. With new data pouring in every day suggesting Britain’s economy is in trouble, the Bank’s leaders may soon rethink their stance on interest rates. Consumer spending, considered by many British economists to be the most important growth driver, is declining. The drop in savings rates and stagnation of home prices indicates consumers have already spent all that can be expected. Moreover, last week’s terrorist attacks will likely cause consumer confidence to fall further, mitigating the possibility of a fast recovery. Economic growth is now projected at 2.1% for 2005, down from 2.75% in 2004. When the Central Bank meets next month, the upshot will most certainly be lower interest rates. Traders and investors concur, and have priced two rate cuts into British debt futures, implying a rate of 4.25% at the year’s end. Rate cuts or not, the British Pound will most likely continue to slide. The Economist reports:

The strong chance of feeble growth in the second quarter—the National Institute of Economic and Social Research is forecasting a rise in GDP of only 0.3%—means that a cut in August is on the cards. In a poll of economists on July 5th by Reuters, 26 out of 43 said that rates would fall next month.

Read More: They’re coming down soon