Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China Yuan Currency Climbs Most in 20 Months

Currencies / China Currency Yuan Jun 21, 2010 - 05:20 AM GMT

By: Mike_Shedlock

Currencies

Best Financial Markets Analysis ArticleStock and commodities futures are up headed into Monday's trading on news that China has "unpegged" the Yuan. Please consider Yuan Climbs Most in 20 Months After China Signals End to Peg.


The yuan climbed the most in 20 months against the dollar and forwards jumped after China’s central bank relaxed a two-year peg before a Group of 20 summit this week.

The currency advanced 0.37 percent to 6.8010 per dollar as of 3:54 p.m. in Hong Kong, the biggest gain since Oct. 7, 2008, according to the China Foreign Exchange Trading System. The 12- month non-deliverable yuan forward rose 1.3 percent to 6.6276, implying traders are betting on a 2.6 percent appreciation.

The People’s Bank of China said on June 19 it will allow greater currency “flexibility.” Yesterday, it ruled out “large changes” in the exchange rate and said it will prevent “excessive” fluctuations. The central bank, which has accumulated $2.4 trillion in reserves by intervening in currency markets, said it will maintain the trading band and curb inflows of short-term speculative capital.

Intervention Risk

“We can’t exclude the possibility of yuan depreciation,” said Shen Jianguang, Mizuho Securities Asia Ltd.’s chief economist for Greater China, who said a 2.5 percent drop is possible this year if the dollar-euro rate is unchanged. Even so, he added, China needs to show flexibility in its currency before the G-20 summit in Toronto on June 26-27.

U.S. Senator Charles Schumer said lawmakers will push ahead with proposals for trade sanctions until they are convinced the advance is fast enough to allow fair competition.

Textiles makers stand to lose the most from appreciation and some would “face bankruptcy” with profit margins as low as 3 percent, Zhang Wei, vice chairman of the China Council for the Promotion of International Trade, said in March. Europe’s debt crisis has added to pressure on their earnings. Swift Umbrella Co., based in the southern Chinese province of Fujian, was forced by European buyers to cut prices 6 percent this year, Xu Youchuan, sales manager, said in a June 2 interview.

Given that China pegged the Yuan for nearly a year, of course this is the biggest move in 20 months. Moreover, before anyone celebrates with champagne, please note the Yuan advanced 0.37 percent, hardly a big deal.

The Euro has been swinging more than a percent a day and five percent a week.

China Buys Time at G-20 With Yuan Announcement

One way good way of looking at this situation is China’s Hu Buys Time at G-20 With Yuan Announcement

Chinese President Hu Jintao may have succeeded in removing the yuan’s valuation from debate at this week’s Group of 20 leaders’ summit, economists and political analysts say. How much time he’s bought depends on how flexible the currency will become.

“I think the announcement is in a sense preemptive and will probably keep currency off the agenda at the G-20 meeting, a well advertised Chinese goal,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington. “My view is that they have at a minimum bought some time.”

China Plays Obama like Violin

An even better way of looking at the situation is China Plays Obama like Violin on Yuan Exchange Rate

You have to hand it to China for the way it played Obama like a violin. On Thursday and Friday China Warned Against Finger-Pointing while announcing the "yuan exchange rate of no concern to others" setting a confrontational tone for the G-20.

Today, China says Dollar peg is dead and vows yuan flexibility.

China got exactly the praise it wanted from US and European leaders in exchange for essentially nothing.

China did not agree to a timetable or an amount. In essence it was a hollow statement. By acting extremely tough, then throwing Obama a bare bone, it made it appear as if the action was meaningful.

It wasn't. I am not in favor of tariffs but I expect to see Schumer pressing ahead with protectionist legislation.
Whether this buys China some time with the protectionists in Congress remains to be seen. However, it is clear that China played its hand as good as conceivable possible with an extremely tough hard-line stance, followed up a day later with seemingly large concession.

Had China not played these games, no one would have been impressed with a pissy .37 percent move. Now, everyone is going gaga.

 

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in