“Strong Dollar Policy?”
Thursday, May 28, 2009
The U.S. Treasury has always maintained a “strong dollar policy!” But does our government really want to keep the dollar strong or do they just say so?
It seems to me they just announce they want a strong dollar in public, but debase it whenever they can.
Treasury Secretary Geithner has planned a visit to China next week to talk to the Chinese about growth and how to save the world. He wants to talk about China revaluing the renminbi (also know as the yuan). What this means is he wants the yuan to increase in value and the dollar to fall in value. From the other side of his mouth, Geithner is also calling for a strong dollar.
Geithner is living in a delusion if he thinks he can save the world while he asks the Chinese to do his bidding. In response to the public announcement of his coming visit, the Chinese devalued the yuan by 0.7% rather than revaluing it. So essentially the Chinese reminded him that he was welcome there but do not expect them to fall in line as he demands.
Here’s what Reuters had to say about it…
“U.S. Treasury Secretary Timothy Geithner will meet top Chinese government officials including President Hu Jintao and Premier Wen Jiabao in Beijing early next week, the Treasury Department said on Wednesday.
“Geithner heads for the Chinese capital on the weekend for two days of talks at the start of next week on how to promote stable and balanced growth between the two countries and on what they can do to encourage global recovery. Next Monday and Tuesday’s visit comes amid concern in China over rising U.S. debt, and China, the leading buyer of U.S. Treasury securities, may use the opportunity to repeat its worry about the safety of its U.S. assets.”
And this is how the market has reacted since then…
Since Geithner announced he was going to China, the bias has been for the market to buy more euro and sell dollars across the spectrum. In fact, they’re attributing Geithner’s trip to China as a first step in pushing the U.S. dollar lower.
Most expect behind the scenes pressure to move the yuan higher. But despite the rumors that Geithner specifically said something about U.S. dollar weakness the real reports from the Treasury suggest the opposite – so expect some flip-flops in positioning as the market trades consolidation more than breakout today.
The EUR 1.3800-1.4000 range holds for now.
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