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Bond Outlook July 20th

The Chinese have revalued the CNY, we provide a clear summary of the forces behind the revaluation and the impact that it is likely to have on the global economy.

Bond Outlook [by bridport & cie, July 27th 2005]

Well it has finally happened! The Chinese have revalued the CNY by 2.1% against the USD and have moved into a managed floating regime with reference to a basket of currencies. Back in May the market viewed a revaluation as a certainty, put simply, the fundamentals had been demanding it for too long. However, China's ability to surprise the market and plain ignore the fundamentals had led some (ourselves included) to start wondering not how much they would revalue, but if they would revalue at all. In this edition of the weekly, we will concentrate on the CNY revaluation and seek to counter the misleading excitement in the media with a clear summary of the driving forces behind the revaluation and the impacts that it is likely to have.

 

The People's Bank of China (PBOC) has moved the CNY exchange rate versus the USD to 8.11 from a previous level of 8.27 continuing to allow a fluctuation of +/- 0.3% on either side of this benchmark. Causing more than its fair share of interest is the basket (blackbox) of currencies that the CNY is to be anchored against.

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