Sunday, May 01, 2005

What will Happen to Interest Rates if the Chinese De-value the Yaun?

If the Chinese decide to let their currency float, many believe that they will also reduce the amount of US Treasuries they need to purchase. If the Chinese demand for US Treasuries falls, the rates should rise. In any event, a decision by the Chinese to de-value appears imminent.

"The yen chalked up heavy gains on Friday across the board, extending a week of gains on the back of heightened speculation about a possible revaluation of the Chinese yuan.

The US dollar and particularly the euro were sharply lower versus the Japanese and other Asian currencies, most of which which are seen as potential beneficiaries of any move by China to let its currency appreciate. The yen also benefited from a drop in crude price below US$50 per barrel in the New York afternoon."

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