Upward movement of euro helped by optimistic PMI; U.S. and euro zone nations piling on China over renminbi exchange rate
ByOct. 5, 2010 | Written by Jeffrey Winograd
Upward movement of euro helped by optimistic PMI; U.S. and euro zone nations piling on China over renminbi exchange rate
Some uncertainty over reasons for euro’s continued strengthening – The euro received a boost in Oct. 5 morning trading in the aftermath of a report showing a rise in the purchasing managers’ index (PMI). The PMI is seen as a valuable economic indicator and the upward movement could be a sign that economic recovery in the euro zone is not illusory. However, some analysts are suggesting the strengthening euro may primarily be the result of a perception the currency is one of the few hard currencies available. On the other side of the globe, the Bank of Japan, by changing its overnight target rate to a range of 0.0% – 0.1%, eased its monetary policy. The last time the BOJ had a zero-interest rate was in mid-2006. The BOJ action resulted in a slight rise in the USD/JPY pair that lasted for the blink-of-an-eye. And there is still no sure sign that the Japanese central bank will again intervene to devalue the yen.
Euro zone joins U.S. as another paper tiger – The real effective exchange rate of the Chinese renminbi “remains undervalued,” according to Jean-Claude Juncker, chairman of the grouping of euro-zone finance ministers. Euro-zone nations are calling for a broad-based appreciation of the renminbi that is handled in an orderly and significant manner, Juncker said at a press conference after meeting with Chinese Premier Wen Jiabao. Translating Juncker’s diplomatic mumbo-jumbo into plain English, he admitted that he effectively received the cold shoulder from Wen on this issue. Both the United States and the European Union have ramped-up their criticism of China’s determination to keep its currency artificially low. Last week, in response to the Chinese currency policy, the House of Representatives passed a resolution that could be a stepping stone to sanctions against China. The response by most observers to these latest developments was more yawning and acknowledgement that the U.S. trade deficit with China will see no improvement.
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