What Happens to Currencies
If China Revalues? - Forex Market
Friday, 03 June 2005 GMT - Source
FXCM
Japan competes vigorously against
China in many export markets. Therefore, if China does
revalue the Yuan, and if as expected the Yuan rises
in value, Japanese products will instantly become cheaper
vis a vis their Chinese counterparts. This increased
competitiveness is expected to expand Japanese exports
and benefit the yen against both the euro and the dollar.
European officials expressed a strong displeasure at
the fact that euro has absorbed most of the recent dollar
weakness while the Asian currencies have remained steady.
News of Yuan revaluation is likely to change that dynamic
by attracting more capital flows to Asia which would
cause EUR/JPY to decline. Note the quick market reaction
to the surprise Bank of China rate hike announcement
last October: many market participants believed this
to be the first signal in the Yuan revaluation process.
Should People’s Bank of China actually revalue
the Yuan, the downward impact on the EUR/JPY is likely
to be far more lasting.
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