Tags: china | currency | manipulator | treasury | trump

Don't Believe US, I Think China Really Is a 'Currency Manipulator'

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Thursday, 18 October 2018 09:28 AM Current | Bio | Archive

U.S. Treasury Says China is Not Manipulating Its Currency

The U.S. Treasury says in its semi-annual report to Congress (“Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States”) that China is not manipulating its currency.

This is not actually true. China is currently trying to stop its currency from falling against the dollar, but that’s not what the U.S. Treasury thinks of when it thinks of "manipulation." This means that automatic sanctions cannot be applied against China.

In the meantime earlier today, the People’s Bank of China weakened its daily fixing by 0.25 percent. The yuan (CNY) dropped as much as 0.3 percent to 6.9422 CNY per dollar, which is its weakest level since January 2017.

U.S.-EU Trade Talks Tensions

No, it’s not China trade that is attracting attention today. The European Union (EU) – U.S. trade talks have become a little heated after U.S. Commerce Secretary Wilbur Ross criticized the EU Trade Commissioner Cecilia Malmstrom for stalling the trade talks.

The language of the United States-Mexico-Canada Agreement, or USMCA has given rise to fears that U.S. auto imports from the European Union (EU) and Japan may now become a policy focus of the U.S. administration.

Given the recent drop in U.S. equity markets, investors should take care because this is all market relevant.

Investors could also do well keeping in mind there also remains that "minor" point that French President Macron keeps raising that the European Union (EU) should not be signing trade deals with countries that are not part of the Paris Climate Change Accord.

Fed Minutes

The Minutes of the Federal Open Market Committee of the September 25–26 meeting offered some calm, sensible sanity.

The Fed was pretty clearly signaling the continuation of the Fed’s hike-pause, hike-pause policy. Market conviction about a December rate hike is very high.

"Real" interest rates in the United states are around zero and it is just not credible to suggest that ‘real’ interest rates in the United states should stay around zero with a tight labor market and ‘deficit-financed’ tax cuts, ‘stoking’ overheating risk.

The U.S. economy is not overheating ‘now’ but there are signs the Fed is worried that it might overheat in the future.

A substantial number of FOMC members thought that rates would have to rise above the long-term norm in the next couple of years.

That is a policy the central bank would pursue ‘only’ if it thought the economy was overheating.

The message the Fed is sending is that the U.S. economy is performing fine at the moment and that the risk is ‘not’ a recession. The risk is a ‘too strong’ period of growth in the future.

So, for now at least, the Fed has made it clear that they are focused on their agenda despite rising presidential pressure on their rate decisions.

Fed officials overall expect rates to rise to 3.1 percent next year and 3.4 percent in 2020, just above their 3 percent estimate for the long-run “neutral” rate at which borrowing costs are neither braking nor stimulating economic growth.

President Trump has been using the current low inflation rate to suggest that the Fed should not be raising rates.

Economically, that’s not especially relevant as an argument as the Fed is considering inflation out to 2020 when it sets policy.

Politically, this may also not be a terrible relevant argument either.

Most Americans will have an inflation rate that is ‘above’ the official headline inflation rate. Inflation is a plutocratic statistic. It reflects the spending patterns of high-income people. Most Americans ‘perceive’ inflation will be in a biased manner. That means that most Americans are unlikely to feel that inflation is as low as the official statistic suggests. It is also true, of course, that a large number of Americans don’t know what he Federal Reserve does.

Brexit

The interminably tedious process of separating the European Union (EU) and the United Kingdom (UK) threatens to become even more interminably tedious. The UK government and the European Union are signaling that the transition phase could possibly go from lasting 21 months to lasting 33 months. Forcing us to keep talking about this "nonsense" for another year seems a cruel unnatural punishment.

Meanwhile, in the real world the British public will ignore most of this and the British pound has been relatively calm.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
 

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HansParisis
The US said China is not manipulating its currency. This is not actually true. China is currently trying to stop its currency from falling against the dollar, but that’s not what the U.S. Treasury thinks of when it thinks of "manipulation."
china, currency, manipulator, treasury, trump
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2018-28-18
Thursday, 18 October 2018 09:28 AM
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