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Politics : Idea Of The Day

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To: IQBAL LATIF who wrote (48483)	5/11/2005 11:07:14 AM
From: IQBAL LATIF	Read Replies (1) of 50167

China was ready to increase the yuan/dollar band from current 26bp peg to 126bp in one months time and up to 603bp in a year from now. USD/JPY immediately plummeted below 105 while EUR/USD shot up to 1.2915. There was only one problem.No Chinese official would confirm the story, China’s Central Bank said that it had not heard of the report and Japanese Finance Minister Sadakazu Tanigaki said that he was not aware of any plans to revalue the Chinese currency. So how real is the story? UBS research noted that “The Bloomberg report is based on what appears to be a mistranslation on the People's Daily's English-language web site, as the 1m and 1y bands given correspond closely to the NDF rates.” While the markets may have jumped the gun, it is becoming more apparent each day that Chinese are considering some type of FX policy change both to stave off the rising protectionist sentiment in the US and to control inflation back home. It is very doubtful that China would make a dramatic move to a free float but a controlled loosening of the band, which would release some of the political pressure on Beijing without seriously impacting China’s vital export sector, is quickly becoming a plausible scenario. dailyfx.com

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