Back
18 Apr 2013
Forex Flash: China contemplates loosening Dollar peg- DBS Group
FXstreet.com (Barcelona) - DBS group analysts note that the G20 Finance Ministers and Central Bank Governors will start a two-day meeting in Washington D.C.today.
They note that a communique will be issues at the end of the meeting to reaffirm commitments made at the G20 meeting in February to refrain from currency wars and respect market forces in setting exchange rates. Additionally, the see that People’s Bank of China (PBOC) Vice Governor Yi Gang confirmed that China is considering to widen the USD/CNY trading band again in the near future. They write, “When China last widened the band in April 2012 to ±1% from ±0.5% around its central parity, it cited that market forces will play a larger role in determining its exchange rate. A wider band would also require less intervention as evidenced by stable foreign reserves around USD3.2-3.3 trillion from April to November last year.”
With foreign reserves rising to new record highs again to USD 3.31 trillion in December and USD 3.44 trillion in March, the US Treasury Currency Report issued last Friday highlighted that America was troubled that large scale intervention had resumed in China again. The team feel that this goes some way to explain why, in spite of slower GDP growth in 1Q13, lower-than-expected inflation and a trade deficit in March that the USD/CNY central parity was guided to new record lows in the past four trading sessions.
They note that a communique will be issues at the end of the meeting to reaffirm commitments made at the G20 meeting in February to refrain from currency wars and respect market forces in setting exchange rates. Additionally, the see that People’s Bank of China (PBOC) Vice Governor Yi Gang confirmed that China is considering to widen the USD/CNY trading band again in the near future. They write, “When China last widened the band in April 2012 to ±1% from ±0.5% around its central parity, it cited that market forces will play a larger role in determining its exchange rate. A wider band would also require less intervention as evidenced by stable foreign reserves around USD3.2-3.3 trillion from April to November last year.”
With foreign reserves rising to new record highs again to USD 3.31 trillion in December and USD 3.44 trillion in March, the US Treasury Currency Report issued last Friday highlighted that America was troubled that large scale intervention had resumed in China again. The team feel that this goes some way to explain why, in spite of slower GDP growth in 1Q13, lower-than-expected inflation and a trade deficit in March that the USD/CNY central parity was guided to new record lows in the past four trading sessions.