Forex Futures Forum Archive for 06/24/2005

SanFrancisco analyst 11:46 GMT June 24, 2005 Reply   
The actual mood of the FED over China.

1) In favor of revaluation but is
2) Not in favor of protectionist actions.
3) Cites Chinese political controls as an economic problem.

Greenspan testimony quotes from yesterday ...

"Given this vulnerability to emerging imbalances, the buildup of ever-larger holdings of bonds resulting from sterilization of foreign exchange purchases poses threats to China's financial stability. Hence, the sooner the Chinese, in their own self-interest, move to a more flexible currency regime, perhaps leading other Asian currencies to become more flexible as well, the better for all participants in the global trading system.

In spite of its recent improvements, the financial system of China is still inordinately governed by administrative command and control. Market pricing of financial instruments is still accorded only a minor role.

While the presumption that a revaluation of the RMB will notably increase jobs in the United States by constraining imports or expanding exports is without statistical or analytical support, it is nonetheless the case that a more flexible RMB would be helpful to China's economic stability and, hence, to world and U.S. economic growth."

kfar saba zp 06:47 GMT June 24, 2005 Reply   
nh, news from FT on china and u.s. oil/gas co. deal at work.......
LINK

kfar saba zp 05:55 GMT June 24, 2005 Reply   
folks, thks for the many excellent posts in here......

Syd 05:14 GMT June 24, 2005 Reply   
Asian central banks may not want to admit it, but the euro's recent weakness is likely to slow the diversification of their foreign exchange reserves away from the U.S. dollar. ust a few months ago, central banks were buzzing with talk of reducing their decades-old reliance on the dollar as their main reserve currency; South Korean officials were even discussing their plans publicly in parliament. But even then, innate conservatism, the difficulty of finding highly liquid alternatives to U.S. dollar assets, and a reluctance to destabilize the currency markets probably meant diversification was moving at a slow pace. Now the process is likely to have slowed further, analysts say. Because of the large size of Europe's markets and trade flows, the euro was meant to play a major role in reserves diversification; its recent tumble has made that more difficult.
After the euro fell below $1.27, the volume of euro-buying orders from Asian and the Russian central banks has dropped," said a senior foreign exchange trader in Tokyo. "They are still buying (euros), but they've also started selling more."
The euro, which fell to a 10-month low Friday of $1.1984, has tumbled 11% against the dollar since the start of this year.
The mere fact that the euro has depreciated isn't a major issue for the big central banks, which tend to ignore all but long-term currency fluctuations in reserve management. "Our management of our foreign exchange reserves isn't affected by whether a currency has risen or fallen," Masatsugu Asakawa, director of Japanese Finance Ministry's foreign exchange markets division, told Dow Jones. What's worrying for central banks is the politics contributing to euro depreciation. After voters in France and the Netherlands three weeks ago rejected the proposed European Union constitution, an Italian government minister called for Italy to pull out of the common currency, and European leaders utterly failed last weekend to resolve a bitter dispute over the E.U.'s budget. Most analysts still see no serious risk of Europe abandoning the euro in the next few years, but risk-averse central bankers can longer assume the chance of one or more countries pulling out is zero. And at the very least, the political turmoil in the E.U. has raised questions about whether the diverse, 25-nation group can efficiently manage a unified economy and a common currency. Because of the turmoil, central banks have turned "euro-neutral from euro-positive", the Tokyo foreign exchange dealer said. "In the long term, no doubt diversification will continue, but in the short term, it's obvious that the euro faces difficulties both politically and economically," said Toru Umemoto, currency strategist at Barclays Capital in Tokyo. He expects the weak outlook for the euro "will prevent central banks from diversifying or ease the speed of diversification in the next one or two years". "The realization that there is a non-zero risk that the European Monetary Union may break up clearly should test the notion that the euro will one day challenge the dollar as the hegemonic currency."