There's a load of stuff roiling the financial markets this morning:
1. The People's Bank of China announced a change in the currency regime replacing the current pegged regime (8.28 RMB per USD) with an immediate small (2%) revaluation (to 8.11) and then allowing the currency to move +/- 0.3% from the previous day's close. The RMB will be managed around but not directly refer to a basket of currencies
What this amounts to could be a crawling peg where if the pressure is sufficient the RMB could appreciate 0.3% a day. Remember, though, that China is not capital account convertible which means its quite straightforward for the PBOC to manipulate the market if it chooses and there won't be a deluge of capital.
Immediate effects:
- bearish USD, bullish JPY and Asian currencies
- will NOT be enough to satisfy the US Congress
- little effect on Chinese economy
Quick thot is this is a first step in what should be a gradual loosening of the currency regime. It's not a sop directed towards the US as in that regard it is inadequate. I think that this is somewhat less than what the market was hoping for.
2. Bank Negara Malaysia, the Malaysian Central Bank, has announced a loosening of their peg - adopted during the Asian currency crisis - on the back of the Chinese move. Bank Negara is expected to maintain tight controls overall.
3. Several detonators were set off in the London Tube system but there are apparently no injuries. Only detonators went off and not bombs.
More later.
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