- We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation?
- Money Morning Mid-Year Forecast: The Dollar Headed for Some Change
- From Leader to Laggard: Is it Time to Bet Against the U.S. Dollar?
- How to Play Gold – So it Doesn't Play You
- The Greek Debt Crisis Will Slow the Yuan's Advance
- China's Explosive GDP Growth May Force Government to Raise Yuan and Interest Rates
- Washington – Not China – Is the Real Manipulator Here
- Geithner's China Jaunt May Signal Easing of Tensions on Yuan
- Why the Bulls Can Stand Strong at Home and Overseas
- What's Really Driving Obama's Sudden Interest in Oil
- Here's What a Veteran Trader Sees for Gold Prices…
- Chinese Premier Wen Rejects U.S. & European Pleas, Says Yuan to Stay Stable
- China Standing Firm on Currency Policy Despite Mounting Pressure
- Plummeting British Pound Leads to Worries of Another Currency Market "Black Wednesday"
- Weak Job Market and Low Inflation Stall Fed's "Exit Strategy"
- How the Looming "Debt Bomb" Will Crush the Dollar
Start the conversation
"This is going to lead to a transition from export-lead, investment-lead to more of a consumption-lead economy going forward," Jing Ulrich, chair of China equities and commodities at JPMorgan Chase & Co. (NYSE: JPM), told CNBC. "I think the ramifications are profound not just for the next few months but actually for the coming years."
Not surprisingly, U.S. exporters embraced the news as an opportunity to compete against Chinese companies and to reduce the U.S. trade deficit. Foreign nations, including the Untied States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.
Start the conversation
As Keith Fitz-Gerald, Money Morning's Chief Investment Strategist, pointed out last week (June 10), from January through May, the dollar gained ground against all but two of the world's leading currencies - China's yuan and the Japanese yen - and it retained parity with them. The greenback appreciated by as much as 16% versus the struggling euro, which last week (June 8) briefly dipped to a four-year low below $1.20, and 13% against the British pound.
The InterContinental Exchange's (ICE) U.S. Dollar Index (USDX), which measures the dollar's value versus a trade-weighted basket of six leading foreign currencies, climbed from a low of 76.732 on Jan. 14, 2010, to an intra-day high of 88.586 on June 8.
And little wonder. The Greek debt crisis continues to threaten Europe's overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there's China, - the engine of world growth during much of the financial crisis - which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it's easy to see why currency investors have sought the safe haven of the U.S. dollar.
In short, it appears that "everybody" knows the greenback is the best choice for safety, quality and security.
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
To see why the dollar could roll over - and to see how to play it - please read on ...
Pushed by angry U.S. legislators anxious to brand China as a "currency manipulator," the U.S. Treasury secretary tried to strong-arm China into revaluing the yuan - all because of an assumption that the Asian giant wasn't allowing its currency to appreciate.
Unfortunately for Geithner, those efforts were stymied by a flood of data that actually demonstrates that China's currency has significantly appreciated against the already-wheezing greenback.
The Obama administration's assertion that China is artificially keeping the yuan undervalued to gain a global competitive advantage isn't just misguided: It actually demonstrates that Washington lacks even a basic understanding of global economics. Given that the same U.S. leaders who have been pushing to hang this manipulator label on China and impose sanctions are the same ones who tried to end the financial crisis by creating a river of debt that will haunt us for years, I can't say that I'm surprised.
As the U.S. argument goes, pegging its currency to the dollar gives China a distinct advantage when it comes to less-expensive manufacturing and a strong export market. The implication is that somehow this is negatively impacting our economy, or - in a variation of the same logic - holding back our recovery. Washington points to the massive trade deficits we regularly run with that country as evidence of China's currency-market wrongdoing.
In reality, China's pegged currency has done two things. First, it's allowed the United States to keep its inflation rate at a much lower (and more-manageable) level than it should have been in view of the $14 trillion in debt that this country has taken on.
And, second, it's allowed China to fuel its own stimulus package while at the same time assuming a meaningful role in the ongoing global recovery.
The unexpected meeting was arranged on-the-fly after Geithner's scheduled trip to India, and may be a sign that both countries are seeking to defuse the currency issue ahead of Chinese President Hu Jintao's trip to Washington next week.
The move follows the Treasury Department's decision last weekend to delay a decision on whether to label China a "currency manipulator."
"[China is] becoming more open to the world, and with that, you're going to see the [yuan] take on a broader role internationally," Geithner said in a Bloomberg Television interview in Mumbai as he finished preparations for the previously unscheduled visit to China. "That's a healthy, necessary adjustment."
We've all heard the criticisms that some of the geological surveys are as much as 30 years old, and the arguments that the ecological impact of drilling off the U.S. East Coast isn't worth the accessible oil, which some critics estimate could play out in as little as six months at current demand levels.
But even after more than a day of debate over the motivations for - and possible results from - President Obama's apparent energy policy about-face, one thing is very clear: This announcement has nothing to do with oil.
It's all about the U.S. dollar.
To find out why President Barack Obama really lifted the moratorium on oil drilling, please read on...
But not right now.
While I recognize that gold is one of the few "commodity" markets that people are really passionate about, the purpose of this article is not to take sides either with the gold bugs or those who reject the argument that gold is "forever." Rather, I want to discuss my interpretation of the market's cycle.
After spot gold made an all-time high against the dollar at $1,226.37 on Dec. 2, gold has been in "retreat" mode. For the past several months, gold has been in a broad trading range, seemingly unable to move one way or another. This process has created frustration among bulls and bears alike.
Here is the dirty little secret about the gold market: It can be a horrible investment and here's why...
Start the conversation
A report from Yi Gang, China's director of the State Administration of Foreign Exchange (SAFE), today (Tuesday) shrugged off calls for currency appreciation. Yi said China's foreign-exchange reserves - which are the largest in the world at $2.4 trillion - are safe and stable, and the country will strengthen its supervision of speculative cash inflows.
Speculation that China's currency, the yuan, is soon to rise has increased investment, but such speculation is not particularly welcome. "Underground money shops" disguise funds as foreign direct investments and trade accounts in an attempt to profit from the increasing spread on interest and exchange rates, according to Yi.
As you can see in the chart below, the plummeting British pound sterling has dropped even more than the beleaguered euro in the past month and a half, while the good old U.S. dollar has been as good as gold. (That last bit was a bit of currency irony; the dollar has actually been much better than gold, which has flat-lined in the past six weeks.)