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China Gives a Strong Vote for the Euro

By Sean Hyman   |   Monday, 04 Oct 2010 09:26 AM

Sometimes I feel like the world is a chess board and that the United States is getting closer to checkmate by China.

I ran across another example of this as I listened to Chinese Premier Wen Jiabao give a speech in Athens, Greece.

He made some comments that show that he is very much “pro-euro” and that casts one more vote against the dollar and in the favor of the euro. But let’s look at a couple of things that he said.

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He said, “I have repeatedly voiced China’s support of measures adopted by the European Union and the IMF.” Then he went on to say, “China supports a steady euro and it will not be reducing its European bond holdings.”

Later on in the speech, he talked about how China was going to buy Greek bonds once Greece started tapping international markets for funding again. (Greece currently has plans to issue new bonds in 2011.)

Wen is getting to be buddies with groups all over Europe lately. He’s promised to help Greece’s shipping industry in order to help it come out of a second year of recession.

So what does all of this mean?

It means that if investors know that China is going to be investing in Greek and other European bonds soon, then these investors will be much more comfortable investing in the euro since they know that China will have to “buy some euros” in order to purchase European bonds.

Just so there’s no doubt, Wen made no bones about the fact that he believed that Greece was emerging from the crisis and that investor confidence was returning. He said he’s confident that Greece will return to growth.

Meanwhile, over here in the United States, the Fed is talking about buying up $500 billion more worth of Treasuries to effectively lower the interest rate some more in order to get the unemployment rate lower.

Therefore, all of this bodes much better for the euro and much worse for the dollar. So this just gives investors one more excuse to join the Fed’s selling by shorting the dollar.

You can rest assure that people were paying attention to Wen’s speech since this is the first time in 24 years that a Chinese premier has come to Greece.

Also, China is one of the “big fish in the pond” these days. So investors hope to jump into investments ahead of China and allow their massive purchasing power to push up the investor’s investments.

In other words, the investor is the surfer and China is the tidal wave.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.


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Sometimes I feel like the world is a chess board and that the United States is getting closer to checkmate by China. I ran across another example of this as I listened to Chinese Premier Wen Jiabao give a speech in Athens, Greece. He made some comments that show that he...
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2010-26-04
 

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