MacroscopeAs cracks appear in the dollar, it’s time now for the euro, yen and yuan to enjoy the limelight
Dollar is showing strong signs a correction has already begun. The weak euro and yen are staging good comebacks, which should lend good momentum for the yuan
There is a golden rule among the myriad of factors driving exchange rates that what policymakers want for their currencies, they generally tend to get.
And that helps explain why China’s authorities have little chance of preventing the yuan getting a lot stronger against the US dollar in the months ahead.
Quite simply, US President Donald Trump wants a weaker dollar to boost stronger domestic growth and there is a very good chance that he will get his wish fulfilled fairly soon. The dollar has been locked into a major rally since the dark days of the global financial crisis back in 2008. It has come a long way since and now it looks ripe for a major reversal south again.
The dollar is showing strong signs that a correction has already begun in earnest. The chronically weak euro and yen are staging good comebacks, a trend that should lend good momentum for the yuan in the coming months. The dollar is going down boosting other currencies in the process. There is little China can do to stop it.
China’s central bank might try to stand in its way, invoking a new “X” factor in its efforts to stabilise yuan volatility, but it will prove fruitless in the long run. When dollar speculators get the bit between their teeth, the currency can prove unstoppable on its way up or down in major cycles.