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US pressures china currency change { April 22 2005 } Original Source Link: (May no longer be active)
http://news.ft.com/cms/s/52d7f620-b31c-11d9-ad2b-00000e2511c8.htmlhttp://news.ft.com/cms/s/52d7f620-b31c-11d9-ad2b-00000e2511c8.html
Chinese forwards leap on US pressure
By Steve Johnson in London
Published: April 22 2005 11:56 | Last updated: April 22 2005 11:56
Chinese forward contracts and the Japanese yen both strengthened in European morning trade on Friday as speculation intensified over the prospect of an imminent renminbi revaluation.
Both Alan Greenspan, chairman of the US Federal Reserve, and John Snow, the US Treasury secretary, stepped up the pressure on Beijing to loosen its decade-long dollar peg overnight.
An announcement from China that its current account surplus jumped 50 per cent to $68.7bn in 2004, with its capital account surplus rocketing by 110 per cent to $110.7bn, further lessened Beijing’s rationale for delaying a widening of the renminbi’s trading band.
Mr Greenspan said on Thursday that, “sooner rather than later”, China will have to act for stability purposes. “As far as I’m concerned, it’s very much in their interest to move. And as you can well imagine we in the United States government have been in conversations with them to indicate that in our judgment and in our experience they should be moving sooner rather than later.”
Mr Snow added: “They’ve made so much progress, it’s time to act, time to move their currency”.
The discount on one-year non-deliverable renminbi-dollar forwards promptly moved 550 points to 4,600, the widest level since early January. The market is thus implying an exchange rate of Rmb7.818 to the dollar in 12 months’ time, compared to the current Rmb8.278 rate.
“The probability of a long-anticipated adjustment of China’s current exchange rate vis-à-vis the US dollar appears higher in the next few months than at any time in the past few years,” said Marvin Barth, global currency economist at Citigroup.
“China faces a choice between rising inflation and increasing mis-allocation of capital or allowing the nominal exchange rate to strengthen.”
China has repeatedly said it will not buckle under external pressure over this issue, but analysts at JP Morgan speculated that Beijing’s absence from last weekend’s meeting of the G7 group of leading nations could “reflect an intention by officials to avoid the impression that the regime change was a result of external pressures”.
The yen also rose, firming Y0.6 to Y106.25 against the dollar and Y0.7 to Y138.86 versus the euro, with many in the market assuming that a renminbi revaluation will encourage other Asian nations to allow their currencies to appreciate against non-Asian currencies.
The yen also drew support from a solid performance from Japanese equities, as well as an apology by Junichiro Koizumi, the Japanese prime minister, for his country’s actions before and during the second world war. This was seen as reducing Sino-Japanese tensions.
Sterling strengthened 0.8c to $1.9155 against the US dollar and 0.2p to £0.6821 versus the euro as first quarter UK GDP growth came in at 0.6 per cent, dragging the year-on-year rate down a fraction to 2.8 per cent. Although the figures were in line with expectations, they offered reassurance that the UK economy was still in reasonable shape.
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