3/15/2006

Pilot fish in forex market

The Chinese yuan has rallied by about +0.2% to 8.0377 yuan/USD in the past 2 sessions, which is a sharp move by yuan standards, after Chinese Premier Wen Jiabao said on Tuesday that China will not sharply revalue the yuan but will start letting the market play a bigger role in setting the yuan. Although any continued increase in the yuan is likely to be glacial, the fact that it is moving at all is bearish for the dollar and bullish for other Asian currencies. China revalued the yuan by 2.1% last July to 8.11 and the yuan then slowly crept higher over the following 8 months by 1% to a high of 8.0307 yuan/USD on March 2.

Will this start several new trends?
Update I just saw this report. So something is brewing on this front. History of currency market is good indicator of how the current account deficit overhang will get cleared, with another co-ordinated global currency adjustment.
WASHINGTON (MarketWatch) -- Three U.S. senators will visit China next week before deciding whether to proceed with a March 31 vote on legislation that would slap punitive tarriffs on Chinese goods in retaliation for Beijing's currency practices. "We can't tell you anything until we go ... before we ask for the vote we want to go to China," said Sen. Charles Schumer, D-N.Y. Sen. Lindsey Graham, R-S.C., the co-sponsor of the tarrif legislation, and Sen. Tom Coburn, R-Okla., will also go on the trip where they will visit with top government and business officials. The trip comes as the Bush administration and lawmakers increase pressure on China to further loosen the peg between its yuan currency and the U.S. dollar.

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