After months of intense political pressure, China announced Saturday that it would allow its currency to gradually appreciate against the U.S. dollar. China's currency - the yuan - has been pegged to the American greenback since 2008.
"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.
Currency
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After a Strong First Half, Is the U.S. Dollar Headed for a Reversal?
In spite of an assortment of economic uncertainties at home, the U.S. dollar has been the star of the currency world for most of 2010. Spooked by persistent and seemingly insurmountable debt problems in the European Union - and the specter of unsustainable growth and potential inflation in China - investors fled European and Asian currencies for the perceived relative safe haven of the dollar.
But the U.S. dollar may have topped out.
Let me explain ...
But the U.S. dollar may have topped out.
Let me explain ...
From Leader to Laggard: Is it Time to Bet Against the U.S. Dollar?
The U.S. dollar has been one of the world's strongest currencies in the first part of 2010, posting double-digit gains through the end of May.
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 ...
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 ...
Taipan Daily: Trillion Shmillion - Europe's "Common Currency" Is Still Doomed
As far as the euro goes, the trillion-dollar "shock and awe" program was a shocking disappointment. Here's why.
"... while Europeans no longer fear foreign armies, they are starting to fear foreign bondholders. Europe's existence as a "lifestyle superpower' has depended on an ample supply of credit... "
- Gideon Rachman, Financial Times
"...this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems..."
- Marc Ostwald, Monument Securities
"... while Europeans no longer fear foreign armies, they are starting to fear foreign bondholders. Europe's existence as a "lifestyle superpower' has depended on an ample supply of credit... "
- Gideon Rachman, Financial Times
"...this is just another example of a short-term, leveraged solution, that merely adds to the burden of future problems..."
- Marc Ostwald, Monument Securities
The Greek Debt Crisis Will Slow the Yuan's Advance
Poor Tim Geithner.
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.
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.
To find why China should not revalue the yuan, please read on...
India and Brazil Join U.S. in Pressuring China to Let Yuan Appreciate
President Barack Obama's efforts to pressure China to let the yuan appreciate gained momentum Thursday when the central bank presidents of Brazil and India both spoke out against China's exchange rate policy. Speaking ahead of a Group of 20 (G20) meeting scheduled for this weekend in Washington, the Indian and Brazilian central bank heads surprised […]
How to Profit As Copper Becomes the "New Gold"
Copper is a key metal that keeps the world economy humming. Used in art and industry, copper consumption has grown by 4% a year since 1900. But, for some reason, everyone in the world still prefers gold. Read this report to discover why copper may become the "new gold" for investors. And, find out the best ways to profit from copper's rise.
China's Explosive GDP Growth May Force Government to Raise Yuan and Interest Rates
China's economy raced ahead in the first quarter at the fastest pace in almost three years, underscoring concerns about overheating and prompting speculation that the government will be forced to raise interest rates in addition to scrapping the yuan's peg to the dollar. China's gross domestic product (GDP) rang up unexpectedly strong annual growth of […]
Washington - Not China - Is the Real Manipulator Here
SHANGHAI, People's Republic of China - China just posted its first monthly trade deficit in nearly six years, a $7.24 billion shortfall for March that essentially torpedoes Washington's argument that the Asian giant is a "currency manipulator" of the worst kind.
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 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.
Let's take a minute to talk about why this is true.
U.S. China Currency Dispute Heating Up
The heated debate between China and the United States over the value of its currency intensified yesterday (Thursday) when a senior Chinese trade official warned that further appreciation of the yuan could put many of its exporters out of business - something China can't afford.
Those remarks came shortly after a key International Monetary Fund (IMF) official flatly stated that the currency is severely undervalued.
China's Vice Commerce Minister Zhong Shan told The Wall Street Journal in an exclusive interview that the profit margins on many Chinese export goods were less than 2% and any further increase in the currency's value would endanger more exporters' survival.
Those remarks came shortly after a key International Monetary Fund (IMF) official flatly stated that the currency is severely undervalued.
China's Vice Commerce Minister Zhong Shan told The Wall Street Journal in an exclusive interview that the profit margins on many Chinese export goods were less than 2% and any further increase in the currency's value would endanger more exporters' survival.
China's Exports Surged by 46% in February, Adding to Currency Pressures
China exports in February rose for the third month in a row, beating forecasts and putting added pressure on government officials to rein in stimulus spending and loosen currency policies. Exports in February jumped 45.6% from a year earlier after a 21% advance in January, the customs bureau reported today (Wednesday) on its Web site. […]
Plummeting British Pound Leads to Worries of Another Currency Market "Black Wednesday"
Outside of the earthquake rescue efforts in Chile and the Greek-rescue efforts in Brussels, the big news in the world economy last week occurred in currencies.
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.)
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.)
U.S. and China Seek Middle Ground on Currency Dispute Ahead of Obama Visit
The currency dispute between the United States and China has often reached a fevered pitch over the past decade, but both nations have softened their stance ahead of U.S. President Barack Obama's visit next week.
However, analysts remain uncertain as to whether or not China and the United States are serious about making policy adjustments, or are simply trying to ensure that Obama's first trip to the nation as president goes smoothly.
In a rare tweaking of policy language, the People's Bank of China (BOC) signaled on Wednesday that it might take other major currencies - not just dollar - into account when guiding its exchange rate.
However, analysts remain uncertain as to whether or not China and the United States are serious about making policy adjustments, or are simply trying to ensure that Obama's first trip to the nation as president goes smoothly.
In a rare tweaking of policy language, the People's Bank of China (BOC) signaled on Wednesday that it might take other major currencies - not just dollar - into account when guiding its exchange rate.
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Will the Yen Lose its “Safe Haven” Status as Japan’s Economy Deteriorates?
By Keith Fitz-GeraldInvestment DirectorMoney Morning/The Money Map Report Historically speaking, the Japanese yen has proved to be a safe haven against global turmoil. Right now, however, Japan's economy is among the worst hit of all the global powers. It is ill prepared to weather the global storm and it's falling like a rock. That's why, […]