By allowing the yuan to appreciate, China at least temporarily placated foreign trade partners that had expressed concern about the currency's value. However, the decision has done little to quell criticism from many U.S. policymakers and trade groups who are angry that the Obama administration refuses to brand China a "currency manipulator."
Still, while the yuan does need to appreciate, critics in the United States should remember that the dollar too is flawed, and that the uneven relationship between the two currencies has often worked to America's advantage.
Treasury Secretary Timothy Geithner has thrice declined to tag China as a currency manipulator in his biannual report to Congress. Geithner even delayed the release of the most recent report to give China more time to adjust its policy. That move paid off in June when just days ahead of the Group of 20 (G20) leaders' summit in Toronto, Beijing announced that it would allow the yuan to appreciate against the dollar. Since then, the currency has risen about 1% against the greenback.
Geithner, who made two visits to China in the spring for closed-door talks with top officials on the issue, called the policy shift a "significant step" in his report, but said the yuan remains "undervalued."
What matters now is "how far and how fast the renminbi [or yuan] appreciates," Geithner said, adding that the United States "will closely and regularly monitor the appreciation" of the currency.
Dollar
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Question of the Week: Readers Respond to Money Morning's Question on China's Currency
After months of intense political pressure, China last week announced 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 United States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.
Chinese domestic consumption stands to benefit the most, as consumers will have more purchasing power on top of China's recent wave of multi-industry wage increases. Western companies that reach out to Mainland China can access a consumer base with more money and an increased desire to spend, which should give Western investors a chance to cash in on climbing profits.
However, not everyone will see immediate benefits from the new currency policy. In fact, the combination of big double-digit wage increases in China and an increase in the yuan will reanimate inflation.
"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 United States, have accused China of undervaluing its currency to give its exporters an advantage in global trade.
Chinese domestic consumption stands to benefit the most, as consumers will have more purchasing power on top of China's recent wave of multi-industry wage increases. Western companies that reach out to Mainland China can access a consumer base with more money and an increased desire to spend, which should give Western investors a chance to cash in on climbing profits.
However, not everyone will see immediate benefits from the new currency policy. In fact, the combination of big double-digit wage increases in China and an increase in the yuan will reanimate inflation.
Commodities Are Key as China Continues to Call the Shots
China ended up being the big story this month, as investors looked past Europe to the Far East for clues about what shape the global recovery - if you can even call it that - is taking.
Markets around the globe tanked yesterday (Tuesday) after the Conference Board revised its leading economic index for China to show the smallest gain in five months in April. The index rose just 0.3% in April, which was a significant reduction from the 1.7% gain the Board reported on June 19.
The news of the error contributed to the biggest sell-off in Chinese stocks in more than a month, and sent U.S. indices into a dizzying downward spiral. The Dow Jones Industrial Average plunged 268.22 points, or 2.65%, to close at 9,870.30 and the Standard & Poor's 500 Index tumbled 33.33 points, or 3.10%, to close at 1,041.24.
Markets around the globe tanked yesterday (Tuesday) after the Conference Board revised its leading economic index for China to show the smallest gain in five months in April. The index rose just 0.3% in April, which was a significant reduction from the 1.7% gain the Board reported on June 19.
The news of the error contributed to the biggest sell-off in Chinese stocks in more than a month, and sent U.S. indices into a dizzying downward spiral. The Dow Jones Industrial Average plunged 268.22 points, or 2.65%, to close at 9,870.30 and the Standard & Poor's 500 Index tumbled 33.33 points, or 3.10%, to close at 1,041.24.
Dollar Bulls Retreating From Bets Against Euro
The biggest surge in the value of the U.S. dollar since 2005 appears to be waning, as traders retreat from bets against the euro and other currencies.
Futures traders at the Chicago Mercantile Exchange are in the process of unwinding record bets that the dollar will rally against other currencies.
The number of contracts hedge funds and other large speculators hold betting on a rise in the dollar versus other currencies declined by 70% to 49,335 in the week ended June 22 from a June 8 peak of 163,085, according to an analysis of Commodity Futures Trading Commission data conducted by Bloomberg News.
With concern that Europe's fiscal crisis will cause a nation to default easing, the Dollar Index - which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona - is down 3.5% since June 7.
Money Morning Chief Financial Strategist Keith Fitz-Gerald thinks there may be an opportunity to cash in on the dollar's recent weakness in view of the increasing flows of capital into Asian markets.
Futures traders at the Chicago Mercantile Exchange are in the process of unwinding record bets that the dollar will rally against other currencies.
The number of contracts hedge funds and other large speculators hold betting on a rise in the dollar versus other currencies declined by 70% to 49,335 in the week ended June 22 from a June 8 peak of 163,085, according to an analysis of Commodity Futures Trading Commission data conducted by Bloomberg News.
With concern that Europe's fiscal crisis will cause a nation to default easing, the Dollar Index - which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona - is down 3.5% since June 7.
Money Morning Chief Financial Strategist Keith Fitz-Gerald thinks there may be an opportunity to cash in on the dollar's recent weakness in view of the increasing flows of capital into Asian markets.
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. But, is the greenback really the bet choice for safety, quality and security? Read this report to find out why it's time to bet against the dollar...
We Want to Hear From You: Are You Worried About China's Currency Rise Sparking Inflation?
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.
"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.
Money Morning Mid-Year Forecast: The Dollar Headed for Some Change
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 east of the Atlantic and the specter of unsustainable growth and potential inflation on the Pacific side of the globe, savers and investors fled European and Asian currencies for the relative safe haven of the dollar.
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.
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.
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 ...
How to Play Gold – So it Doesn't Play You
The Greek bailout has turned gold into a "must have" investment. But the new gold rally will be different from gold rallies of the past. This time around, gold isn't serving as protection from inflation... it's become more speculative. Read this report to find out exactly how to play gold now.
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...
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.
Geithner's China Jaunt May Signal Easing of Tensions on Yuan
In a surprise move, Treasury Secretary Timothy Geithner will meet with Chinese Vice Premier Wang Qishan in Beijing today (Thursday), as speculation increases that China is considering letting its currency, the yuan, rise against the dollar.
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."
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."
Why the Bulls Can Stand Strong at Home and Overseas
Stocks enjoyed another plus week, closing one of the better Marches of the past 80 years. It seems like ages since volatility has been this low, and there have been many complaints about complacency and listlessness. Yet those concerns may be misplaced if indeed we are enjoying the second leg of a normal bull cycle. Low volatility in a bearish phase does suggest complacency, to be sure, but in a bullish phase it serves more to keep expectations in check.
What's Really Driving Obama's Sudden Interest in Oil
U.S. President Barack Obama generated a lot of hubbub with his decision to open up parts of the Atlantic Ocean and Gulf of Mexico to oil drilling.
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...
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...
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