Chinese will re-commit to the US dollar exchange rate

Foreign Exchange - Currency Outlook

Everybody and his brother is calling for the Chinese to revalue, from the Philippines and Malaysia to the eurozone, US, IMF and World Bank. APEC finance ministers have so far resisted making the same call, but the summit isn’t over yet. The APEC chairman, Singapore FinMin Tharman Shanmugaratnam, said "From today's discussion, none of us were calling for, or thought it advisable, to have any sudden significant re-alignment of exchange rates." Asked about Chinese revaluation, he said "It's not a silver bullet for solving either the question of domestic demand or towards achieving balanced and sustainable growth."

Is everyone counting on Obama to pull the rabbit out of the hat?

Market News reports today that the Chinese say he won’t. The report says "China has no plans to allow the yuan to appreciate in the short term because the economy is still recovering from last year's global financial crisis, a source familiar with discussions among monetary policymakers told Market News International Thursday. The source said that the government expects to receive a message from President Barack Obama about the need for greater exchange rate flexibility during his visit here next week. Obama will be making his first official visit to China November 15 to 18. His visit will include talks with President Hu Jintao and Premier Wen Jiabao. 'China will not see Obama's requirement for more exchange rate flexibility as a key consideration,' the source said."

Well, of course the Chinese would not tip their hand ahead of time if they do plan to deliver Obama a big victory. And if they do deliver such a victory, what is the cost? The Chinese would not be giving it away for free. Another unnamed official told Market News that "China's exports are more important than U.S. deficits. The Chinese government will not ask for any specific U.S. announcement about an exit strategy but will simply mention it." This is the usual ploy of changing the subject to avoid talking about the elephant in the living room. Or maybe the Chinese will re-commit to the US dollar exchange rate and promise to stop talking about SDR's in return for keeping the US dollar peg a little longer.

Nobody knows what the outcome will be, but clearly something is afoot. Uncertainty about the size of the something is US dollar rate -favorable all by itself since it raises the idea of tectonic shift in sentiment and real flows. But we must not allow expectations to get too high. Summits hardly ever result in a big change. One of the few exceptions was the US TreasSec hounding China at G7 on revaluation a few years ago - and it worked, albeit not right away. The next two or three days will require nimble foreign exchange trading trading with close - in stops and a willingness to be open-minded. Adopt the Boy Scout motto and "be prepared."

Pounds to US Dollars = 1.6579
Pounds to Euros = 1.1071
Euro to Pounds = 0.8949
Pounds to Australian Dollars = 1.7968

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
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Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900

Foreign Exchange - Currency Outlook

Yesterday Dallas Fed Pres Fisher said the decline of the dollar exchange rate has been orderly. We are stunned by this statement. For one thing, the Fed hardly ever talks about buying dollars, which is the Treasury’s turf. For another, it implies approval of the any decline as long as it’s not disorderly. Fisher went from an inflation hawk to now seeing more deflationary concerns than inflationary ones, suggesting that a falling dollar is a good anti-deflation tactic. The risk we run by maintining low interest rates is that it fuels the carry trade and eventually the Fed would have to "craft an appropriate remedy." Holy cow, is Fisher wishing for a US dollar exchange rate crisis so that the Fed can step in with anti-speculation measures?

The mind boggles.

Our favorite Fed, San Francisco Fed Pres Yellen, again said the recovery will be L-shaped, if with an upward tolt, with deflation a bigger risk than inflation and unemployment probably staying high for years to come. Atlanta Fed Lockhart is most worried about commerical real estate and worries the banking system ,not yet recovered, will face another blow.

More to the point, World Bank Pres Zoellick came right out and said emerging markets face a greater threat of inflation and asset price bubbles than developed one. Speaking on the sidelines of the APEC summit in Singapore, he said Asian "central banks need to look beyond just raising interest rates to constrain the amount of liquidity that has been injected into financial systems in response to the crisis,"according to Market News. Bubbles could undermine confidence, whereas "In the U.S. and Europe, because things are in relatively weak conditions, I don't see likely inflationary effects at this time. In East Asia if you start to get a strong rebound in growth and a lot of liquidity there is the question of whether one could start to face asset bubbles in particular markets."

Out of all this, the Chinese potentially revaluing against the dollar by adopting a basket should have the biggest effect. Quite apart from the global political implications, it could be a giant boost to European exports, whereupon Europe's trade surplus will appear to be an issue. It already is an issue, but not as much as the US’ deficit. Then the question becomes whether China diversifies further into the basket currencies. On the whole, the news will be interpreted as dollar-favorable, but underneath, it’s only US-favorable. Talk of a drop in the euro rate due to foreign exchange traders selling euros below to 1.4900 and below is based more on technical ideas than on economic analysis. New euro exchange rates demand from China is the same thing as a weakness factor for the dollar, and a biggie. Fixing the global imbalance is a good thing for the world, but not necessarily for the US dollar itself.

Pounds to US Dollars = 1.6574
Pounds to Euros = 1.1060
Euro to Pounds = 0.9039
Pounds to Australian Dollars = 1.7813

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

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Contact IMS Foreign Exchange + 44 207 183 2790

Pound and Euro exchange rate outlook improves

Foreign Exchange - Currency Outlook

Unless something happens that is now unforeseen, most FX analysts expect a return of the status quo - rising growth nearly everywhere means the Great Recession is ending and it’s safe to seek yield in riskier places and in riskier assets (away from the US and the dollar exchange rate). We never had any right to expect that G20 and the IMF would be effective in pressuring the Chinese to revalue - they are weak organizations with no enforcement or compliance capability, and the Chinese know which side of the bread their butter is on.

It may well be that the US secretly took everyone aside and asked for reticence on China, since the weak US dollar rate really is good for the US economy, even if it’s not good for consumers, but then the US would have been risking a deeper drive out of the dollar as a reserve currency - so if it was some kind of ploy, it was a dangerous one. Does the US have a grand plan for the dollar? Almost certainly it does not, and any talk of US policy being designed to weaken the dollar deliberately is silly. Analysts suspected that was the not-so-secret Bush agenda but we have no evidence this is how the Obama Administration thinks. Still, "allowing" it to weaken (for a greater good like export industries) is another matter.

Clearly Washington is unfazed by the rise in gold (as long as it’s not fuelled by inflation expectations except by a few nutcases). That it is also fuelled by a bigger cohort who fret about budget deficits seems to be only slightly more worrisome. It seems that when it comes to matters pertaining to the dollar exchange rate and related matters like gold, the Administration is going to remain silent. We wonder if Obama even feels much pressure for results from the China trip this week. This is a laissez-faire approach that is not getting the attention and perhaps praise it deserves from those who think Obama is a control freak or a pinko or a big-government collectivist (to revive a Randian term now that two big Rand biographies are being reviewed).

We expect the US dollar Rate to embrace and surpass the 1.5000 mark now that it has kissed the level. Round numbers are nice, and will suffice - next stop, 1.5250.

Pounds to US Dollars = 1.6723
Pounds to Euros = 1.1148
Euro to Pounds = 0.8967
Pounds to Australian Dollars = 1.7997

Bye For Now

Barbara Rockefeller
Foreign Exchange Trading
Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!
Buying Dollars? Buy US Dollars at the Best Dollar Rates!
Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790