Shockers of all shockers, China let the yuan rise against the dollar.
China's central bank, after setting the mid-point for Monday's trading range, let the yuan rise 0.42 percent to 6.7976 per dollar—both the biggest daily gain and the highest close since China revalued the currency and introduced a managed float regime in 2005.
At one point, the yuan was up as much as 0.47 percent from the day's mid-point—just shy of the currency's 0.5 percent limit, which had rarely been tested in practice in the past.
Traders said the lack of intervention by the central bank suggested it wanted the market to drive intraday trade and so underline its weekend pledge.
But it also showed it had ultimate control by setting the reference rate, around which the yuan can trade, at the same level as Friday's fixing.
While today we actually saw a rise in the yuan, don't be so convinced this was a real policy change. China may simply be trying to get international pressure off their banks in order to not be labeled a currency manipulator. China has a long way to go to let the currency re-evaluate to it's true value. Current estimates say the Renminbi is undervalued by 23% to 40%.
Right. The specifics are clearly lacking and worse, China rejects a one time re-evaluation.
The decision to “increase the renminbi’s exchange-rate flexibility” was made after the economy improved, the central bank said in a statement on its website, without indicating a time-frame for the change. It ruled out a one-off revaluation, saying there is no basis for “large-scale appreciation,” and kept the yuan’s 0.5 percent daily trading band unchanged.
“The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability,” the People’s Bank of China said in the statement. “It is desirable to proceed further with reform of the renminbi exchange-rate regime and increase the renminbi exchange-rate flexibility.”
The Renminbi is considered undervalued from 23% to 40%. This appears to be a non-announcement announcement from China before the G-20 meeting in order to get the pressure off for China's currency manipulation.
Just yesterday China claimed their currency manipulation was not up for discussion at the G-20 meeting.
The actual announcement is here. China claims their currency peg helped with the financial crisis. Uh huh. From the press release:
What a surprise. Here comes the ineffectual response on Chinese currency manipulation so the U.S. can pass the buck again.
The Chinese government is preparing to announce in coming days that it will allow its currency to strengthen slightly and vary more from day to day, a move being taken for domestic policy reasons in China but likely to please the Obama administration, people with knowledge of the emerging consensus in Beijing said on Thursday.
The article goes on to claim this is a political windfall for the Obama administration.
The administration has told Chinese officials that currency policy will be high on its agenda this year for economic talks with China, a senior official said on Wednesday. The White House is also weighing whether to designate China as a country that manipulates its currency, when the Treasury Department issues its semiannual report on foreign currencies in April.
President Obama signaled the tougher line on Wednesday, telling Democratic senators that the United States needed “to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage.”
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